Persistent inflationary signals and resilient growth have elevated the likelihood of additional interest-rate increases by several of the Group of 10 central banks, according to recent policy moves and market pricing. Energy prices have risen and tensions in the Middle East show little sign of abating, factors that have helped push some policymakers toward a firmer stance.
Below is a country-by-country assessment of where each G10 central bank stands, ranked from the highest to the lowest policy rate.
1/ AUSTRALIA
The Reserve Bank of Australia has raised its cash rate three times so far this year to 4.35%, fully reversing the rate cuts implemented last year. The central bank signalled that another increase is possible, particularly after a hotter-than-expected inflation reading for July. The deputy governor indicated that policymakers would debate the case for a hike at an upcoming meeting later this month, and market expectations lean toward a further increase then.
2/ NORWAY
Norges Bank ranks among the highest policy-rate setters in the G10, and recent commentary suggests it may be approaching the end of its hiking cycle. It left rates unchanged at 4.25% in August and noted that inflation had softened. Economic growth slowed more than anticipated in the second quarter, expanding just 0.3%. Markets nonetheless price in one additional quarter-point hike by year-end.
3/ UNITED KINGDOM
The Bank of England is widely expected to hold its policy rate steady next week at 3.75%. Attention will likely focus on the distribution of votes among rate-setters, after three members signalled they wanted a hike in July. While markets are pricing in a possible rate increase before year-end, Governor Andrew Bailey appears to favour a wait-and-see approach.
4/ UNITED STATES
Financial markets enter the Federal Reserve's meeting next week assigning better than a 50% probability to another rate hike, which leaves room for a policy surprise. Recent economic data, most notably last week’s strong jobs figures, together with remarks from Fed officials, have contributed to a more hawkish tone among investors. Fed Chair Kevin Warsh said he would avoid "forward guidance", arguing it can constrain policymakers and set public expectations that may later need revision.
5/ NEW ZEALAND
The Reserve Bank of New Zealand raised its policy rate for a second consecutive meeting earlier this month, taking it to 2.75% as widely expected. The bank also cautioned that future tightening would likely be more measured, reflecting rising risks to the outlook. Markets place a high probability on another rise by year-end.
6/ EURO ZONE
The European Central Bank moved to lift its policy rate by 25 basis points on Thursday and adopted a more hawkish tone in light of rising energy costs. Market pricing reflects at least one more hike by the end of the year and implies a deposit rate above 3% in 2027. Some economists, however, expect the energy shock to weigh on growth and to help contain inflationary pressures into next year.
7/ CANADA
The Bank of Canada kept policy on hold last week, but Governor Tiff Macklem warned that the bank could raise rates multiple times if inflation remained elevated, marking a shift from prior messaging that portrayed upside inflation risks and downside growth risks as roughly balanced. Since the hold, indicators suggest the labour market may be cooling and trade tensions with the United States have introduced new uncertainty. Markets still assign a probability to another hike before year-end.
8/ SWEDEN
Sweden's Riksbank is viewed as comparatively dovish within the G10 and is expected to keep its policy rate at 1.75% when it meets later this month. August inflation data came in below expectations, reinforcing that outlook. Nevertheless, market pricing anticipates some rate increases later in the year.
9/ JAPAN
The Bank of Japan faces a highly anticipated meeting next week where investors expect a policy move to lift rates to 1.25%. Market focus will be on the tone of any post-meeting guidance from hawkish policymakers. Expectations of further increases have already supported a strong rally in the yen, and some members of the central bank have signalled the possibility of rapid hikes if inflation accelerates. Economists currently expect the policy rate to reach 1.75% in the second quarter of 2027.
10/ SWITZERLAND
Markets expect the Swiss National Bank to maintain its key rate at 0% when it convenes on September 24 and to hold it through much of next year. Although recent data showing higher consumer prices and strong growth raised the prospect of an earlier move, a strong Swiss franc has helped damp inflation pressures and reduced the immediate need for tightening.
The shift in tone among major central banks comes as energy prices climb and geopolitical tensions persist. These developments have rebalanced expectations across markets, increasing the probability of further tightening in several economies while leaving others positioned to pause. Investors and businesses will be watching forthcoming decisions closely, particularly central bank communications for clues on the path of policy and the likely impact on growth, inflation and currency moves.
Key points
- Energy-price increases and ongoing inflation have pushed several G10 central banks toward a more hawkish posture, evident in the ECB's recent 25 basis-point hike and elevated market odds for Fed and BOJ tightening - impact: financial markets, energy and currency markets.
- Policy rates among the G10 now range from Sweden's 1.75% to Australia's 4.35%, with Norges Bank at 4.25% and multiple central banks signalling they may still have room to tighten - impact: banking sector margins, consumer borrowing costs.
- Labour-market strength in some economies and signals of cooling in others complicate the policy outlook, leaving markets to price in differing paths of rate moves across countries - impact: labour-sensitive sectors such as retail and housing.
Risks and uncertainties
- Rising energy prices and sustained geopolitical tensions in the Middle East could amplify inflationary pressures, increasing the chance of further tightening by central banks - sectors affected: energy, transportation, manufacturing.
- Cooling in labour markets and signs of slowing growth in some economies could reduce the need for additional hikes, potentially leading to policy divergence and volatility in currency and bond markets - sectors affected: finance, housing, exporters.
- Central-bank communications, including vote splits or avoidance of forward guidance, could introduce market volatility if they differ from investor expectations - sectors affected: asset managers, fixed-income investors.