Big central banks tilt towards hiking mode as inflation nerves rise

The Bank of Canada is seen in Ottawa. THE CANADIAN PRESS/Justin Tang

Central banks in big economies are signalling a change of stance, with many now on hold after a long easing cycle, and policymakers flagging that their next moves could be rate hikes if inflation takes hold again.

The European Central Bank all but confirmed it was done with monetary easing, while the Bank of England cut rates in a narrow vote as dissenters cautioned about price pressures. Markets still expect more U.S. monetary easing next year, but some Federal Reserve policymakers have also warned the world’s biggest economy might already be running too hot.

Here’s where central banks in 10 developed markets stand:

Switzerland

The Swiss National Bank (SNB) left its policy interest rate unchanged at 0 per cent on Dec. 11, the lowest among developed-market central banks, and said the recent agreement to reduce U.S. tariffs on Swiss goods had improved the economic outlook.

Even though Swiss inflation is at zero as the strong safe-haven franc lowers import costs, the bar for bringing rates into negative territory is high, and economists expect price growth to recover mildly next year and the SNB to stay on hold throughout 2026.

Canada

The Bank of Canada (BoC) held its key rate at 2.25 per cent last week, after 225 basis points of easing this cycle. Governor Tiff Macklem said the economy was proving resilient to U.S. trade measures.

The BoC is expected to keep rates on hold until 2027, after government spending and robust oil exports lifted third-quarter growth to 2.6 per cent and the labour market strengthened.

Sweden

Sweden’s Riksbank also expects previous monetary easing to begin lifting GDP growth and with year-on-year inflation running just above its two per cent target, it held rates at 1.75 per cent on Dec. 18 and analysts anticipate it will hike again in late 2026.

New Zealand

With unemployment stuck at a nine-year high, turning hawkish will be a tough choice for new Reserve Bank of New Zealand boss Anna Breman.

With a string of punchy rate cuts having helped propel inflation to the top end of the central bank’s target range, however, money markets see New Zealand’s cash rate nearing three per cent by December 2026 from 2.25 per cent currently.

Euro Zone

The European Central Bank (ECB) has been firmly on hold at two per cent since June and its latest pause on Thursday also came with upgrades to growth and inflation forecasts.

Traders did not brave strong bets for monetary tightening, however, after ECB President Christine Lagarde cited heavy uncertainty and avoided forward guidance.

United States

The Federal Reserve cut rates on Dec. 10, in a divided vote, then hinted at a pause.

Delayed jobs data showed that the labour market had declined in October, then snapped back the following month and U.S. business leaders also expect further price rises from tariffs.

Fed policymakers predict just one 25 bps cut in 2026, which may spark disagreements with U.S. President Donald Trump, who wants more easing, with all eyes on how dovish Fed Chair Jay Powell’s as-yet-unnamed replacement might turn out to be.

Britain

Bank of England rate-setters voted narrowly for a quarter-point cut to 3.75 per cent on Thursday and Governor Andrew Bailey warned future easing was a close call.

Even though the British government’s tax-hiking Nov. 26 budget has soured economic sentiment and is expected to dampen inflation next year, the BoE’s dissenters were concerned about price growth getting stuck too high.

Norway

The Norges Bank has been the most cautious in the G10 pack, having cut rates by just 50 bps this cycle.

It held borrowing costs steady on Thursday, although futures markets anticipate 44 bps of further easing next year after inflation cooled off.

Australia

The Reserve Bank of Australia looks like it will be first to the turning point. On Tuesday, it held rates steady at 3.6 per cent, ruled out further policy easing and, most notably, warned its next move could be up if inflation pressures prove to be stubborn.

That gave the Australian dollar a boost and weighed on government bonds. Markets are fully pricing a hike by June 2026, and see a good chance it will come in May.

Japan

The Bank of Japan, the sole central bank in hiking mode for now, is set to raise rates to 0.75 per cent at its meeting on Friday.

Japanese markets are in focus globally. Prime Minister Sanae Takaichi’s announcement of massive stimulus has sent longer-dated government bond yields surging, with spillovers elsewhere, while the yen is under pressure.

(Reporting by Naomi Rovnick and Alun John, editing by Amanda Cooper and Alex Richardson)