Ethtrader Market Update: Last Week’s Oceania Central Bank Rate Cuts are a Positive Signal, but Global Monetary Policy Conditions Remain Tight
RBA Finally Cuts Interest Rates, while RNBZ Does Another Jumbo Cut
The Reserve Bank of Australia (RBA) has finally cut interest rates by 0.25% last week to 4.10%. This comes after they have held interest rates unchanged for more than a year at 4.35% (last rate hike was in November 2023 as shown by the brown line above).
The reason for the rate cut was lower inflationary pressures in Australia, but the meeting statement said that policymakers want to be careful future rate cuts as it may derail disinflation. After the meeting, Governor Bullock said the next move will be based on data and this rate cut is not a signal that they will start a series of cuts.
Meanwhile the Reserve Bank of New Zealand (RBNZ) cut rate by 0.50%, bringing their Cash Rate to 3.75%, the third 0.50% rate cut since October 2024 as shown by the grey line in the chart above. As you can see the RBNZ peak policy rate was much higher than the RBA peak policy rate, but their swift cuts have already brought their policy rate below the RBAs.
Global Monetary Policy Still Tight
Despite the smaller size and market impact of the RBA and RBNZ, it's good to see more interest rate cuts from central banks. However, when looking at the bigger picture, interest rates still remain very high as you can see below:
Despite all global central banks cutting rates (excluding Bank of Japan of course, who are hiking), the level of interest rates are still high.
Top Three Main Central Banks Look Likely to Pause
The Federal Reserve members have turned somewhat hawkish and are signalling a pause following higher inflation readings and data that shows the labour market is still strong. ECB policymaker Schnabel said last week that they are getting close to a rate pause as their policy may not be restrictive anymore and high energy prices are a risk. Meanwhile a higher inflation reading from UK last week at 3.0% versus forecast 2.8% casts doubt that inflation may still be on the decline, which could limit scope for the Bank of England to cut rates further. Adding to more uncertainty is Trump’s tariff policies, which have the potential to increase inflationary pressures.
Final Thoughts
When central banks started easing in mid to late 2024, it was seen as a good signal to support the crypto bull run and altseason, but seeing how shallow the rate cuts have been, if there are no other new catalysts such as more favourable regulatory developments from US and the SEC, it is possible that the big pump will be delayed further. This means it is even more important to continue monitoring economic data and central bank statements in the coming weeks and months, especially inflation and employment data.
DISCLAIMER: Economic data from forexfactory with additional info from the aggregated links on the site, charts are created with forexfactory and CMC data in Microsoft Excel, Asset prices from CMC and TradingView, ECB rate pause news from https://www.reuters.com/markets/rates-bonds/ecb-needs-start-discussion-over-when-halt-rate-cuts-schnabel-says-2025-02-19/, UK inflation news from https://www.reuters.com/world/uk/uk-ons-says-inflation-was-30-january-2025-02-19/#:~:text=British%20inflation%20sped%20up%20by%20more%20than%20expected,price%20pressures%20will%20ease%20over%20the%20longer%20term.