Global Rate Paths Splinter as Trump Drives Change at the Fed

(Bloomberg) — A spell of global interest-rate divergence is in store as central banks feel their way through the economic fog stoked by Donald Trump’s second year at the White House.

The cycle of post-pandemic tightening and easing is giving way to a less synchronized phase across advanced economies, according to Bloomberg Economics.

Its forecasts anticipate a whole spectrum of rate paths for the world’s most-traded currencies in the coming year or so, as uncertainty and volatility — often emanating from Washington — test central bankers’ nerves.

Drawing the spotlight even more than usual will be the Federal Reserve. Its policymakers will carefully gauge mixed signals from the US economy, while also facing the prospect of a new chair picked by a critical president openly calling for rate reductions and heaping legal pressure on the central bank.

BE’s forecast is for more Fed easing than the consensus view of just two cautious moves in 2026. Stripping out the US, its aggregate gauge of advanced-economy rates would end the year little changed, highlighting how splintered policy could turn out to be.

From prospective hikes in Canada, Japan and Switzerland, to steady borrowing costs in the euro zone, to cuts in Australia and New Zealand, policy trajectories that were once far more in tandem may be about to stray noticeably. Meanwhile central banks in emerging markets and beyond, from Brazil to Nigeria, are likely to reduce rates significantly.

What Bloomberg Economics Says…

“The world’s most important central bank is likely to cut by more than markets expect, with a weak labor market likely to erode hawkish sentiment at the Fed. Deep US rate cuts won’t be replicated by other major central banks: the BOE will do a lot less, the ECB is done cutting and the BOJ is moving in the other direction.”

—Jamie Rush, director of global economics. For more, click here

As with 2025, geopolitics, trade policies and the whims of Trump may easily jolt the outlook. But with those caveats in mind, and so far as it’s possible to make predictions right now, here is BE’s latest edition of our quarterly guide to 23 central banks around the world — accounting for a combined 90% of the global economy.

GROUP OF SEVEN

US Federal Reserve

Current federal funds rate (upper bound): 3.75% Bloomberg Economics forecast for end of 2026: 2.75% Market pricing: Money markets are betting on two quarter-point cuts this year, the first by June and the second by year-end. The Fed looks likely to keep rates on hold in January and proceed more tentatively this year after lowering its benchmark at three consecutive meetings to close out 2025.

Chair Jerome Powell followed the last cut — one that drew an unusual level of resistance on the central bank’s policymaking panel — by declaring those three reductions should be enough to stabilize the US labor market while still keeping downward pressure on inflation.

The US economy continues to tug policy in two directions. Net hiring has largely stalled, while inflation remains stubbornly above the Fed’s target. But even Christopher Waller, who pushed forcefully for all three cuts, said in December there’s no rush to keep lowering rates in early 2025. Investors don’t see another cut until April.

Other questions loom large for the Fed. The US Supreme Court will later this month hear arguments on whether Governor Lisa Cook can remain at her post while lower courts hear her challenge to Trump’s attempt to fire her over unproven mortgage fraud allegations. Her ouster would deeply puncture the Fed’s independence.

Then there’s the impending announcement of Trump’s selection for the next chair. Powell’s term ends in May and Trump has hinted the job is up for grabs between longtime aide Kevin Hassett and former Fed governor Kevin Warsh. Each has pledged to pursue lower rates and to shake up the central bank. But either would also likely struggle to maintain credibility among investors and with fellow Fed policymakers while also keeping Trump satisfied.

If the economy doesn’t provide a clear justification but the new chair lobbies hard for cuts, the Fed could be in for a period of unprecedented internal conflict.

Another dramatic twist emerged late on Sunday, when Powell revealed the central bank had been served with grand jury subpoenas from the Justice Department threatening a criminal indictment related to his prior congressional testimony on renovations of its headquarters. The move “should be seen in the broader context of the administration’s threats and ongoing pressure,” Powell said in a written and video statement.

What Bloomberg Economics Says:

“Bloomberg Economics expects the FOMC to keep rates on hold at the first two meetings of 2026 as hawkish members resist further cuts. However, we believe core-goods inflation will peak in 1Q, with inflation showing more definitive signs of cooling after that. Meanwhile, hiring will be tepid and the unemployment rate will stay stubbornly elevated, mainly due to AI-induced reduction in labor demand. Ultimately, we see the FOMC cutting 100 bps by the end of the year.”

—Anna Wong and Stuart Paul

European Central Bank

Current deposit rate: 2% Bloomberg Economics forecast for end of 2026: 2% Market pricing: Swaps imply a small chance of a rate cut around the middle of the year, but investors expect the deposit rate to remain at 2% in December. The ECB hasn’t changed its rate since June, leaving it at 2% after halving borrowing costs in the span of about a year. Data showing inflation at exactly the 2% target in December will have only strengthened policymakers’ resolve not to rock the boat. Forecasts last month also foresee only a minor undershoot of the goal in 2026 and 2027, prompting most officials to show little appetite for further moves, even if they remain alert to global shocks.

Amid that effective policy hiatus, attention may stray toward other important matters such as who will replace the four ECB Executive Board members whose terms expire by the end of 2027. The first to leave is Vice President Luis de Guindos, and the race to succeed him in June has drawn six applications from around the region.

What Bloomberg Economics Says:

“We expect the ECB to leave rates unchanged in 2026. It contends the deposit rate is already at neutral and a boost from German government spending will obviate the need for monetary stimulus as the economy grapples with a sharp rise in US tariffs. We see risks skewed toward additional easing. Higher US tariffs may be disinflationary for the euro area as a result of weaker external demand, and a stronger euro will add to the weight on prices.”

—David Powell

Bank of Japan

Target rate (upper bound): 0.75% Bloomberg Economics forecast for end of 2026: 1% Market pricing: Traders favor one quarter-point hike by June and price a 70% chance of a second increase by the end of the year. BOJ Governor Kazuo Ueda is likely back in a holding pattern this quarter after lifting borrowing costs to the highest level in three decades last month. Despite Ueda’s signals that there’ll be further rate hikes, the yen has stayed weak, hovering near levels that previously prompted intervention by Japan’s financial authorities.

A further slide in the currency would raise the risk that the next rate increase comes sooner than the widely expected pace of roughly once every six months. Political dynamics also loom large. Prime Minister Sanae Takaichi, known for her preference for monetary easing, will have her first direct opportunity to shape the nine-member policy board as one official’s term expires at the end of this quarter.

What Bloomberg Economics Says:

“The yen staying weak even after December’s BOJ hike looks like a policy failure. It isn’t. It forced a long-ignored lesson — well understood abroad — onto the pro-stimulus Takaichi government: political meddling entrenches inflation. Markets get it. The post-hike bear steepening, driven by rising breakevens, shows they expect slow tightening and fiscal largesse to stoke inflation. The BOJ’s playbook is simple: wait for a weaker yen and higher yields to hit Takaichi politically, then hike gently.”

—Taro Kimura

Bank of England

Current bank rate: 3.75% Bloomberg Economics forecast for end of 2026: 3.5% Market pricing: Money markets fully price a 25-basis-point rate decrease by June and assign an 80% chance of another by December. The BOE has signaled it is nearing the end of its rate cutting cycle, with officials warning that decisions to lower borrowing costs further will be a “closer call” in 2026.

Governor Andrew Bailey said the UK central bank has “more limited space” for reductions after cutting its benchmark to 3.75% just before Christmas.

While recent data suggest price growth, the economy and labor market are all weakening, the BOE believes it is approaching the neutral level for rates — the point at which it is neither boosting inflation nor dragging them down. Economists and markets see just one or two more quarter-point reductions before borrowing costs settle. However, some forecasters expect policymakers to go further, given the tepid economic backdrop.

What Bloomberg Economics Says:

“The BOE is almost done cutting rates. We think it will lower them once in 2026 to 3.5% – our estimate of neutral. The risks to our view are tilted to the downside. Even if the economy performs as expected, the BOE could judge the neutral rate is lower. The other key risk is the labor market, which has loosened significantly over the past year. If that trend persists, rates will almost certainly move into accommodative territory.”

—Dan Hanson

Bank of Canada

Current overnight lending rate: 2.25% Bloomberg Economics forecast for end of 2026: 2.5% Market pricing: Swaps price rates to remain broadly steady until the final quarter when they see a 60% probability of a quarter-point hike. The Canadian central bank held its rate at 2.25% in December, which policymakers say is about the right level to help the economy adjust to damage posed by US tariffs. Inflation is holding steady near the 2% target, and although core gauges remain above that level, officials expect weak growth to keep a lid on price pressures.

Governor Tiff Macklem has signaled that colleagues are comfortable holding borrowing costs steady barring any major changes to inflation and growth, and officials have explicitly said they see fiscal policy as the better tool to offset the supply shock of the trade war. With population growth rapidly slowing, billions in new spending announced last year in Prime Minister Mark Carney’s first budget, and significant upward revisions to the size of the economy, the central bank will also have to offer a new assessment of economic slack in the coming months.

What Bloomberg Economics Says:

“A reshuffling of global trade and disentangling of North American manufacturing are the primary downside risks for Canada in 2026. The Governing Council knows monetary policy can’t directly address these issues, but they’re comfortable providing stimulus during this structural transition. We expect the central bank to hold the overnight-rate target at 2.25% for most of 2026, keeping policy somewhat accommodative. Ultimately, we expect USMCA renegotiations to reduce trade-policy uncertainty, opening the door for a quarter-point rate hike by year-end.”

—Stuart Paul

BRICS CENTRAL BANKS

People’s Bank of China

Current 7-day reverse repo rate: 1.4% Bloomberg Economics forecast for end of 2026: 1.2% China has kept its central bank on the sidelines of managing an economy hampered by weak demand and deep-seated imbalances in 2025, and that’s likely to continue. Authorities are seeking to tackle challenges including deflation and sluggish consumer confidence via greater government spending, while broad monetary easing is seen as ineffective when households and companies are reluctant to borrow.

After delivering the smallest rate reduction since 2021 last year, the PBOC is expected by economists to stick to the cautious approach and lower borrowing costs by a total of 20 basis points in 2026. It will likely use various tools including cuts to banks’ required reserves to keep liquidity in the economy ample.

What Bloomberg Economics Says:

“We expect the PBOC to extend easing into 2026 with 20-basis-point policy rate cuts and a 50 basis-point reduction in banks’ reserve ratio requirement. The Politburo meeting held early December emphasized to continue stimulus in 2026 and called for implementing ‘moderately easing monetary policy”. The expected easing in 2026 would be more than that in 2025, and the PBOC is likely to act earlier in 2026 than in 2025 — possibly in the first quarter.”

—David Qu

Reserve Bank of India

Current RBI repurchase rate: 5.25% Bloomberg Economics forecast for end of 2026: 5% The RBI cut its policy repurchase rate to the lowest level in more than three years in December after inflation stayed below 1% for several months, as policymakers sought to bolster demand amid the impact of punitive US tariffs on Indian goods.

“The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum,” Governor Sanjay Malhotra said in a televised address.

The RBI later injected substantial liquidity into bond markets to further ease borrowing costs. The central bank expects economic growth for the year through March to be near 7% and inflation to remain soft. However, delays in signing a trade pact with the US and the continuation of 50% tariffs have made policymakers more cautious and data dependent in shaping their approach for 2026.

What Bloomberg Economics Says:

“The RBI’s December rate cut should lift domestic demand and cushion the tariff-driven slowdown. We expect it to keep injecting liquidity to sterilize outflows linked to FX sales used to support the rupee. Inflation should stay below its 2%-6% target range in December and the outlook remains subdued. As such, lower rates advance both price stability and growth goals. We see another 25-basis-point rate cut in February to support the recovery against global headwinds.”

—Abhishek Gupta

Central Bank of Brazil

Current Selic target rate: 15% Bloomberg Economics forecast for end of 2026: 11% Brazil’s central bank held its rate steady at a nearly two-decade high at its last decision of 2025 without giving clear signs on when monetary easing will start. Policymakers led by Gabriel Galipolo are data dependent as economic growth wanes and inflation gradually slows within the tolerance range.

Low unemployment and inflation expectations that are still running above the 3% target midpoint through 2028 are keeping board members cautious. President Luiz Inacio Lula da Silva’s fiscal policy is also a reason for concern due to prospects of greater public spending during the 2026 election year.

Analysts are now divided on when eventual rate cuts will begin, with some expecting them to start in January while others see easing commencing in March. Galipolo has said the central bank “has no closed doors” when it comes to policy.

What Bloomberg Economics Says:

“The return of inflation to the target band, alongside easing in core and expected inflation, should allow the Brazilian central bank to begin a gradual unwinding of its ultra-tight stance. As the lagged effects of high rates materialize, we expect growth and inflation to slow more sharply than markets anticipate in 2026, opening room for deeper cuts. While Galípolo’s hawkish posture has bolstered central bank credibility, persistent fiscal concerns keep expectations unanchored, making full normalization this year unlikely.”

—Adriana Dupita

Bank of Russia

Current key rate: 16% Median economist forecast for end of 2026: 12% Russian policymakers will be monitoring the inflationary impact of an increase in the value added tax to 22% from 20% that took effect this month before deciding whether to continue easing the key rate at their first meeting of the year on Feb. 13.

While price growth slowed sharply in recent months, the central bank expects a temporary acceleration early in 2026 and has signaled that elevated inflation expectations among households and businesses will impact its rate decisions.

South African Reserve Bank

Current repo average rate: 6.75% Bloomberg Economics forecast for end of 2026: 6.5% The SARB is anticipated to extend its easing cycle after two-year inflation expectations — a key input for setting borrowing costs — fell to a record low of 3.7%, bolstering confidence in its new goal of anchoring consumer-price growth at 3%.

The Jan. 29 meeting will be the second since Finance Minister Enoch Godongwana formally adopted the target, a move long backed by central bank officials. Policymakers resumed rate cuts at their November meeting, lowering borrowing costs by 25 basis points.

Governor Lesetja Kganyago said after that decision that he and colleagues agreed there was scope “to make the policy stance less restrictive in the context of an improved inflation outlook,” helped by a stronger rand and softer oil prices.

What Bloomberg Economics Says:

“The SARB is likely to continue bringing borrowing costs down in 2026 as its inflation target shifts to 3% from 4.5%. It will have scope to do so — inflation is set to cool this year to 3.1%, helped by a firm rand and cooler energy prices. This would give it room for up to two 25-basis-points cuts, taking rates down from 6.75% now.”

—Yvonne Mhango

OTHER G-20 CENTRAL BANKS

Banco de Mexico

Current overnight rate: 7% Bloomberg Economics forecast for end of 2026: 6% Mexico’s central bank is expected to pause its cycle of rate cuts before resuming easing later in 2026. The board’s reasoning is that a stronger peso and a sluggish economy will help alleviate consumer price pressures going forward.

Most policymakers have also made it clear that they are comfortable with inflation staying slightly above the 3% target, which has a tolerance band of plus or minus 1 percentage point. Current projections show central bankers hitting their consumer price goal by the third quarter of 2026.

Still, recently approved tax hikes and new tariffs for over 1,400 goods — mostly imported from Asia — represent potential inflation drivers that could challenge the central bank’s forecasts.

What Bloomberg Economics Says:

“We expect Banxico to continue gradual rate cuts in 2026, while monetary conditions remain relatively tight. Below-potential growth and rising economic slack support further easing. Inflation is within the target range and near its long-term average, allowing policymakers to continue rolling back constraints, though risks remain. Fed rate cuts and peso appreciation add flexibility, but further fiscal consolidation is a necessary condition.”

—Felipe Hernandez

Bank Indonesia

Current 7-day reverse repo rate: 4.75% Bloomberg Economics forecast for end of 2026: 3.75% Bank Indonesia will need to tread a complicated path to lower rates further. Despite pledging to go “all out” supporting economic growth, currency pressure has kept BI’s hands tied in its last three monthly meetings. The rupiah was Asia’s second-biggest loser in 2025 as persistent investor fears about a widening budget deficit sparked a sell-off in Indonesian bonds.

In the meantime, Governor Perry Warjiyo will have to resort to other tools to bolster growth that’s threatened by weak consumption and higher US tariffs. BI has upped incentives for banks that lower borrowing costs, as lending rates have fallen by only 24 basis points in 2025 despite 125 basis points in cuts in the key rate.

What Bloomberg Economics Says:

“Bank Indonesia signaled that more easing is in the pipeline in 2026 — ‘as conditions allow.’ That likely requires greater transmission of its previous cuts and rupiah resilience. BI has had to back off from its more aggressive push to boost growth. That’s due to strain on the rupiah from fiscal risk — with parliament set to decide whether to loosen the government’s budget deficit limit. We expect 25 basis points of cuts in the first quarter and 100 basis points of easing in 2026 altogether.”

—Tamara Henderson

Central Bank of Turkey

Current 1-week repo rate: 38% Bloomberg Economics forecast for end of 2026: 27.5% Turkey’s central bank is expected to continue with rate cuts through 2026, favored by a cool off in prices, last to just under 31% in annual terms in December. Still, economists are urging caution on the pace of cuts, sharply diverging from the central bank on what end-2026 price growth will look like.

Monetary policymakers are aiming to halve inflation by the end of the year whereas analysts see it landing above 20% under the current outlook. Food and energy prices will be closely watched.

A key area to watch in the next few months will be the replacement of hawkish Deputy Governor Cevdet Akcay, who is set to retire in April. The central bank recently poached a JPMorgan and Cleveland Fed economist, Murat Tasci, appointing him as chief economist — a position that had been vacant since 2019.

What Bloomberg Economics Says:

“Disinflation in Turkey supports rate cuts. Near-term inflation risks skew to the downside, but the possibility of renewed currency weakness and persistent food-price pressures further out calls for caution. That will keep the CBRT trimming rates at a measured pace.”

—Selva Bahar Baziki

Central Bank of Nigeria

Current central bank rate: 27% Bloomberg Economics forecast for end of 2026: 23.5% Nigeria’s central bank is expected to resume cutting its rate in 2026 from a current level of 27%, confident that inflation will continue to ease a year after the consumer price index was rebased.

The central bank has also begun a transition to explicit inflation targeting to enhance policy credibility and will aim to slow price growth to 13% in 2027 from an average of 21% last year.

Lower borrowing costs are expected to boost economic expansion, alongside higher government revenue and a narrower budget deficit thanks to a revamped tax code, and the completion of the recapitalization of the nation’s banks. Still, inflation risks remain because of security challenges in food-growing areas and political spending before elections in 2027.

What Bloomberg Economics Says:

“The Central Bank of Nigeria will probably resume rate cuts in February after unexpectedly holding steady in November. By then, policymakers are likely to have seen more evidence that disinflation is taking hold – giving them the confidence to carry on with the easing cycle through 2026. Rates will likely be 3ppts lower at the end of 2026 than the current 27%.”

—Yvonne Mhango

Bank of Korea

Current base rate: 2.5% Bloomberg Economics forecast for end of 2026: 2.5% Korea’s central bank meets on Jan. 15 for its first decision of the year, with markets increasingly questioning whether further easing is still on the table. The board ended last year evenly split on the need for another cut as persistent housing strength, renewed currency volatility and uneven growth pulled policymakers in different directions and tilted the debate toward a hold.

That shift has been reinforced by Governor Rhee Chang Yong, who has said rates are already close to neutral. Attention is also turning to leadership uncertainty, with Rhee’s four-year term expiring in April and no clarity yet on whether he will be reappointed — a factor that could shape the tone of monetary policy later in 2026.

What Bloomberg Economics Says:

“Markets expect further Bank of Korea rate cuts in 2026. We disagree. AI-led chip strength should offset the drag from higher US tariffs, pushing growth above 2% and narrowing the output gap. A weaker won is lifting imported inflation. Firm Seoul house prices mean financial stability remains a concern. Still, fragile domestic demand under a K-shaped recovery argues against hikes. The most likely outcome is a prolonged pause, with rates stuck at 2.5% through 2026.”

—Hyosung Kwon

Reserve Bank of Australia

Current cash rate target: 3.6% Bloomberg Economics forecast for end of 2026: 2.75% The RBA has all but drawn a line under its easing cycle, with Governor Michele Bullock shifting to a more data-dependent stance and signaling that the next move in rates could be higher as inflation remains sticky.

Economists are split. Most expect the monetary policy board to keep rates on hold for the foreseeable future, while others — including Commonwealth Bank of Australia and National Australia Bank — are forecasting a hike later this year, underscoring the uncertainty clouding the outlook. Much will hinge on fourth-quarter CPI, due at the end of January, which will help determine whether the central bank extends its pause or tightens policy again.

Australia’s labor market remains near full employment, but the export-driven economy faces global headwinds, with policymakers hoping domestic momentum offsets the drag.

What Bloomberg Economics Says:

“There’s a divergence of views on where the RBAwill take policy in 2026. Markets have moved to price in rate hikes, following hotter-than-expected inflation data that the central bank views as mostly transitory. We think an easing bias, and further cuts, will re-emerge as inflation concerns ease and the unemployment rate creeps higher. What is clear from the central bank’s hawkish December statement is that rate cuts are off the agenda at the start of 2026.”

—James McIntyre

Central Bank of Argentina

Argentina’s central bank now targets monetary aggregates Argentina hasn’t set its policy rate since June, when the country switched to a monetary targeting framework. Still, officials intervene in the overnight repo rate, which remains negative in real terms to encourage interbank lending.

Beginning this month, the peso will trade within a band that will be adjusted at the rate of monthly inflation, instead of the 1% limit set last April with the International Monetary Fund. While inflation may pick up, the policy promises to shore up Argentina’s scant dollar reserves. Consumer prices rose 2.5% in November from October.

The central bank is seeking to buy $10 billion in reserves this year in its base case scenario. That amount could rise depending on demand.

What Bloomberg Economics Says:

“Argentina’s central bank took a step toward clarifying its monetary policy last month, signaling its monetary-aggregates framework would have a ‘contractionary bias relative to expected money demand’ — code for positive real rates. Even so, policy remains unconventional and opaque, which continues to undermine interest rate stability and seems unpromising as a disinflation anchor.

Stopping fiscal dominance delivered huge disinflation payoffs in 2024-2025, but seems less promising to take the disinflation process much further.”

—Jimena Zuniga

G-10 CURRENCIES AND EAST EUROPE ECONOMIES

Swiss National Bank

Current policy rate: 0% Bloomberg Economics forecast for end of 2026: 0.25% President Martin Schlegel and his colleagues are widely seen to have finished easing after they insisted last month that recent downside surprises in inflation are temporary and don’t warrant a return to negative rates. Most economists now expect that the SNB will keep its benchmark at zero at least until the end of this year, around when some anticipate a first hike.

Policymakers will still watch out for prices falling short of forecasts, after they predicted inflation to average just 0.3% this year. They will also closely monitor the strong Swiss franc, which weighs on import costs, particularly if it rises against the euro.

What Bloomberg Economics Says:

“Negative territory, looking through temporary inflation weakness and tolerating a strong franc: This hawkish SNB stance points to policy rates staying on hold over coming meetings, with reliance instead on communication and targeted FX interventions. As inflation firms, we expect its priority to shift toward regaining policy space, ultimately hiking in December 2026.”

—Jean Dalbard

Sveriges Riksbank

Current policy rate: 1.75% Bloomberg Economics forecast for end of 2026: 1.75% Sweden’s Riksbank looks likely to keep borrowing costs at a three-year low of 1.75% in the months ahead, as inflation cools and the economy begins to recover after three years of near stagnation.

Policymakers, as expected, held rates steady at meetings in November and December and have continued to signal that their next move is likely to be a hike sometime in 2027, provided the recovery is firmly established by then. The central bank should also soon name a replacement for Deputy Governor Anna Breman, one of its five rate setters, who stepped down in October to take up the top job at the Reserve Bank of New Zealand.

What Bloomberg Economics Says:

“With inflation likely to stay well below the Riksbank’s 2% target, we expect rates to stay on hold at 1.75% through this year. Near-term risks to growth and inflation skew further to the downside. Even so, the bar for additional cuts is high, with inflation risks tilting to the upside in the latter part of the year.”

—Selva Bahar Baziki

Norges Bank

Current deposit rate: 4% Central bank guidance for end of 2026: 3.5%-3.75% Norway’s central bank is likely to keep borrowing costs steady at the highest level in the Group of 10 club of major currencies for the next couple of meetings. Officials are balancing sticky core inflation and a slower-than-expected economic recovery as they’re still charting a path of cautious easing through 2028. At the December meeting, Governor Ida Wolden Bache signaled another one to two quarter-point rate cuts for 2026, from June at the earliest.

While the Finance Ministry plans a review of the central bank’s mandate this year, most economists anticipate no major revisions to Norges Bank’s tasks of keeping inflation “close to 2% over time,” while ensuring “high and stable output and employment.”

Reserve Bank of New Zealand

Current cash rate: 2.25% Bloomberg Economics forecast for end of 2026: 2% The RBNZ ended 2025 with a quarter-point rate cut, as anticipated, but surprised by saying its easing cycle was likely over. The hawkish tone prompted markets to start pricing in a hike this year, driving up wholesale rates and prompting lenders to start lifting borrowing costs.

That’s when new governor Anna Breman stepped in. In an unscheduled statement just 15 days into her term, she warned that financial conditions had tightened beyond what was implied by the RBNZ’s cash-rate projections. The shot across the bows prompted some unwinding of rate-hike bets, but data showing gross domestic product jumped 1.1% in the third quarter — confirming New Zealand’s economic recovery is well under way — left investors still betting the RBNZ will pivot to tightening in late 2026.

What Bloomberg Economics Says:

“The RBNZ may have delivered its last rate cut. Significant spare capacity remains in the economy, and the unemployment rate has further to rise. Pressure on the central bank to bolster a nascent recovery in demand is likely to be intense, with a new governor at the helm, and an election at the end of the year. We think the central bank will opt for one final confidence- boosting cut early in 2026.”

—James McIntyre

National Bank of Poland

Current cash rate: 4% Median economist forecast for end of 2026: 3.5% Governor Adam Glapinski has signaled a shift to a wait-and-see mode after six rate cuts last year. The moves followed an unexpectedly sharp slowdown in inflation to the 2.5% target. But Glapinski said in December the main rate is now probably going to stay at around 4% for a longer period of time. Some additional fine-tuning was still possible depending on inflation prints in the months ahead, he said.

Loose fiscal spending will remain a big factor for in policy. The central bank has warned repeatedly that Poland’s budget deficit — the European Union’s second widest after Romania — will limit the scope for more rate cuts. At the same time, Glapinski has signaled the outlook for inflation should remain fairly benign. For a central bank that often erred on the side of sounding hawkish only to wrong-foot markets with a bold series of cuts last year, more surprises are likely to be in store in 2026.

Czech National Bank

Current cash rate: 3.5% Median economist forecast for end of 2026: 3.5% The Czech central bank will contemplate whether easing inflation, likely below its 2% target this year, allows more rate cuts. Despite slowing price growth, some policymakers remain concerned about longer-term risks in soaring costs of services, the red-hot housing market and a widening budget deficit.

Softer-than-expected December inflation prompted investors to boost bets on more cuts, fueling a bond rally and triggering the biggest koruna drop in 10 months. Still, Governor Ales Michl has refused to provide guidance for rate direction beyond saying that all options are open. “We will strive to keep rates above inflation, but we’ll be debating how much that will be,” Michl said on Jan. 4.

–With assistance from Harumi Ichikura, Claire Jiao, Peter Laca, Heesu Lee, Matthew Malinowski, Nduka Orjinmo, Swati Pandey, Tom Rees, Anup Roy, Piotr Skolimowski, Barbara Sladkowska, Gonzalo Soto, Ntando Thukwana, Scott Johnson (Economist), Manuela Tobias, Ott Ummelas, Monique Vanek, Alexander Weber, Beril Akman, Michael S. Arnold, Artyom Danielyan, Martha Beck, Bastian Benrath-Wright, Matthew Brockett, Christopher Condon, Charlie Duxbury, Toru Fujioka, Alice Gledhill, Tony Halpin, Erik Hertzberg and James Hirai.

(Updates with legal pressure on Fed starting in fourth paragraph)

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