Australian Bond Exchange Weekly Update
24th April 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) has kept the cash rate steady at 10% per annum. Inflation for February stands at 2.4%, with the trimmed mean at 2.7%.
- United States: The Federal Reserve maintained its cash rate within the range of 25% – 4.50% per annum. March’s inflation data declined to 2.4%. Core inflation (excluding food and energy) rose by 2.8%.
- United Kingdom: The Bank of England (BoE) has held its Bank Rate at 50%. March’s inflation eased to 2.6%, down from 2.8% in February.
- Eurozone: The European Central Bank (ECB) decreased interest rates by 0.25% to 25% per annum. Inflation in March moderated to 2.2%, compared to 2.3% in the previous month.
Market Insights
- ECB lowered interest rates by 0.25% to 2.25%.
- US business conditions weakened materially.
- Japan’s consumer price inflation is picking up.
- Reserve Bank of India relaxes liquidity rules for banks.
ECB lowered interest rates by 0.25% to 2.25%
On April 17, 2025, the European Central Bank (ECB) reduced its key interest rates by 25 basis points, marking the seventh cut since June 2024. The deposit facility rate now stands at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility rate at 2.65%, effective from April 23, 2025.
This decision comes as the ECB attempts to bolster economic activity amid weakening momentum and mounting global trade tensions — particularly those arising from recent U.S. tariffs on EU goods, which have added uncertainty to the region’s export outlook.
US business conditions indicators for April weakened materially
Key indicators suggest a notable deterioration in U.S. business sentiment in April. The Philadelphia Fed Index, based on early-month surveys, fell to -42.7 from -32.5 — the lowest level since 2011, excluding pandemic periods. This drop occurred shortly after the announcement of new tariffs on April 2, which likely impacted forward expectations.
Similarly, the Richmond Fed Services Sector Index also plunged to -30, marking a record low outside of the pandemic era. Meanwhile, the Richmond Fed Manufacturing Index softened to -13, staying within its historical -20 to 0 range over 2023 and 2024. Together, these readings point to slowing business activity and softer employment conditions across various sectors.
Japan’s consumer inflation picked up last month
Japan’s consumer inflation picked up in March 2025, primarily driven by a surge in rice prices, in line with the Bank of Japan’s gradual rate hike plan. Excluding fresh food, prices rose 3.2% year-on-year, up from 3% in February, as reported by the Ministry of Internal Affairs. This increase aligns with economists’ expectations.
The underlying inflation, which excludes both fresh food and energy prices, also rose to 2.9%, marking the fastest increase since March 2024. This suggests persistent inflationary pressure in Japan.
The latest inflation data is likely to keep Bank of Japan officials confident about their rate hike stance, as inflation has remained above the 2% target for nearly three years. However, Governor Kazuo Ueda has emphasized the need to monitor how US tariff measures impact the Japanese economy, which could alter their course of action.
Reserve Bank of India relaxes liquidity rules for banks
In a move aimed at bolstering credit growth, the Reserve Bank of India (RBI) has relaxed its liquidity rules for banks. Late on Monday, the RBI announced that lenders would now be able to allocate a smaller portion of retail deposits to sovereign bonds as a liquidity buffer. This decision marks a shift in the regulatory framework designed for an era where mobile banking and digital financial services are becoming increasingly prevalent.
The change is expected to improve banks’ liquidity coverage ratio by 600 basis points, thereby freeing up capital that banks can lend to businesses and consumers. This shift is also seen as a positive development for investor confidence, with many believing that the sector’s credit growth is recovering from the slump experienced last year. Since taking office in December, RBI Governor Sanjay Malhotra has been steadily easing lending regulations, which has had a positive effect on the liquidity of the banking system.
*Data accurate as at 24.04.2025
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