On October 30, the weekly review examined the interest rate decisions from five major central banks. Among them, the Federal Reserve, the European Central Bank, the Bank of Japan, and the Reserve Bank of New Zealand all kept their policies unchanged, continuing to observe macroeconomic shifts and assess the right moment for future rate hikes. The Bank of Canada, by contrast, chose to raise rates by 25 basis points, bringing its benchmark rate to 2.5%, marking its first increase since August 2023.
The primary goal of the rate hike was to curb potential high inflation. Even though the Bank of Canada was the only central bank to raise rates this week, its benchmark rate remains relatively low. The benchmark rates in the United States and the eurozone stand at 4.00% and 2.65%, respectively, both higher than Canada's 2.5%. Japan's benchmark rate is 1.25%; while its absolute level is lower than Canada's, it started from negative territory and has already seen cumulative hikes totaling 135 basis points. From an inflation perspective, the rates in the United States and the eurozone are 3.7% and 3.8%, while Canada's is 3.1%, putting the three roughly on par. With a relatively low benchmark rate, Canada still faces the threat of potential high inflation even after one hike. In fact, due to trade frictions between the United States and Canada, the Bank of Canada has been very restrained in tightening monetary policy, with its first rate hike coming later than most major developed economies.
The Reserve Bank of New Zealand's decision not to raise rates at this week's meeting came as something of a surprise. New Zealand's third-quarter inflation rate has reached 3.7%, matching that of the United States. The upper bound of the U.S. benchmark rate is as high as 4.00%, while New Zealand's benchmark rate is only 2.75%. With similarly high inflation, the Federal Reserve clearly feels more urgency than the Reserve Bank of New Zealand. This could put the New Zealand dollar under sustained depreciation pressure against the U.S. dollar. It is worth noting that the Reserve Bank of New Zealand raised rates twice in a row in August and September, already signaling its intent to curb high inflation. The market had expected a third hike in October, but due to weak household spending data and sluggish domestic demand, the central bank ultimately abandoned the option of raising rates. Market participants are confident that the Reserve Bank of New Zealand will raise rates again in December, and unless international energy prices fall significantly before then, the probability of that hike materializing is extremely high.
The Bank of Japan announced it would keep its benchmark rate unchanged at 1.25%, in line with market expectations. Japan's inflation rate is only 2.1%, showing no signs of high inflation and could even be described as a healthy state consistent with moderate inflation. Japan has ample energy reserves, which currently appear sufficient to cushion the impact of elevated international oil prices on potential inflation. Whether the Bank of Japan raises rates now depends not entirely on inflation, but rather on the depreciation trend of the yen against the U.S. dollar. The prevailing market view is that the Bank of Japan's rate hike path has taken shape, and it will likely continue to raise its benchmark rate in the future to reverse the yen's depreciation trend.
Risk warning, disclaimer, and special statement: Markets carry risk, and investment requires caution. The above content represents only the analyst's personal views and does not constitute any operational advice. Please do not treat this report as your sole reference. The analyst's views may change at different times, and updates will not be separately announced.
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