1. Bank of Canada: The Bank of Canada has cut its benchmark interest rate three times consecutively since June 2024. The latest adjustment was a 25-basis-point cut, bringing the key interest rate down to 4.25% from 4.50%. The central bank has lowered rates by a cumulative 75 basis points in this cycle, with expectations for further 25-basis-point reductions later this year if inflation continues to align with forecasts.
2. European Central Bank (ECB): The ECB has also been proactive in lowering its rates, having begun its easing cycle earlier in the year. In June 2024, the ECB reduced its deposit rate by 50 basis points, taking it to 2.00% from 2.50%, as part of a broader effort to address slowing growth and falling inflation in the eurozone.

3. South African Reserve Bank (SARB): The SARB made its first rate cut in four years last week, lowering its benchmark rate by 25 basis points to 7.75% from 8.00%. The move comes as inflation in South Africa has eased from over 7.0% last year to around 5.5%, allowing room for more accommodative monetary policy.

4. People’s Bank of China (PBOC): The PBOC has signaled multiple rate cuts across various benchmarks as part of a broader economic stimulus package to spur growth. Most recently, the one-year loan prime rate was reduced by 10 basis points to 3.45% from 3.55%, while the five-year rate, which influences mortgages, was cut to 4.20%.

5. Czech National Bank: The Czech Republic cut its policy rate by 50 basis points last week, reducing the benchmark rate to 4.00% from 4.50%. This move aims to counter a stagnating economic environment and support domestic consumption.

6. Sweden’s Riksbank: The Riksbank also cut rates recently, bringing its key rate down by 25 basis points to 1.75% from 2.00% as inflation fell below the bank’s target range. Sweden’s decision marks a shift from its previously hawkish stance as economic conditions have softened.

This series of rate reductions reflects a broader trend of monetary easing as central banks grapple with a global economy that is facing both disinflationary pressures and the threat of a deeper slowdown. While the magnitude of cuts varies, these changes are synchronized efforts to stabilize growth and maintain financial stability across regions.

U.S. Federal Reserve and Global Dynamics:

The U.S. Federal Reserve (Fed) is traditionally seen as a bellwether for global monetary policy, and its decisions significantly influence other central banks. While many economies have already begun cutting rates, the Fed has taken a more cautious approach. It finally lowered its key rate by 50 basis points last week, a move that followed months of global central bank easing.

This move is crucial because U.S. interest rates act as a global benchmark, affecting exchange rates and capital flows worldwide. The Fed’s delay has been attributed to persistent inflationary pressures and robust economic data, which made it difficult for the central bank to justify a rate cut earlier in the year. Analysts predict that the Fed will implement at least two more rate cuts in 2024, as inflation cools and economic activity moderates.

Impact on Global Equity Markets:

Global equity markets have been buoyed by the prospect of lower interest rates. Lower borrowing costs tend to enhance corporate profitability and support higher asset prices. Equities in the United States, Japan, and select European markets have been among the primary beneficiaries, with growth and quality segments continuing to outperform. U.S. equities, in particular, have shown resilience due to strong earnings momentum, especially in sectors like technology and communication.

In anticipation of further rate cuts, analysts expect a potential rotation into more cyclical sectors such as automotives, semiconductors, and machinery. Additionally, Japanese equities are also drawing attention as the Bank of Japan navigates its way out of a negative interest rate policy, potentially boosting financials and other rate-sensitive sectors in the region.

Bond Market and Yield Forecasts:

In the bond markets, declining interest rates generally lead to lower yields. This can create an environment where fixed-income securities become less attractive relative to riskier assets like equities. However, for many institutional investors, lower yields may prompt a reallocation towards corporate bonds and emerging market debt, which offer higher returns than government securities in developed markets.
Given the recent moves by the ECB and other European central banks, analysts foresee a convergence of bond yields in Europe and the United States, assuming the Fed continues its path of rate reductions. For emerging markets, the outlook is more nuanced, as countries like Brazil and Mexico may see stronger capital inflows as their central banks ease policy.

Commodity Markets and Rate Impacts:

Commodities, particularly precious metals like gold and silver, tend to benefit from lower interest rates. As real yields decrease, the opportunity cost of holding non-yielding assets such as gold diminishes, making them more attractive. Additionally, a weaker U.S. dollar—often a consequence of lower U.S. rates—further supports commodity prices by making dollar-denominated goods cheaper for foreign buyers.
Oil prices, however, have been more volatile, driven by a mix of geopolitical factors and demand fluctuations. While lower rates can support economic activity and thus oil demand, the outlook remains clouded by supply dynamics, particularly in the Middle East and Russia.

South Africa’s Monetary Policy and Economic Outlook:

In South Africa, the recent interest rate cut marks a significant shift. The South African Reserve Bank (SARB) had maintained a relatively high interest rate for years to combat inflation and attract foreign investment. However, with inflation now moderating and growth stagnating, the SARB decided to cut its benchmark rate in an attempt to stimulate domestic demand and business investment.

South Africa’s economic prospects are mixed. While lower rates may support consumer spending and help alleviate some pressure on debt-laden households, structural challenges such as energy shortages and political uncertainty continue to weigh heavily on growth potential. Analysts remain cautious, suggesting that additional rate cuts might be necessary to prevent a deeper economic slowdown, but the room for manoeuvre is limited given the need to maintain fiscal stability and control capital outflows.

Forecasts for the Next Six Months:

Looking ahead, analysts forecast further rate cuts across several economies, particularly in North America and Europe. The Bank of Canada, for instance, is expected to continue easing its policy rate through the first half of 2025, while the ECB and SNB could also implement additional reductions depending on inflation trends.

For global growth, the consensus is that a synchronized easing of monetary policy will provide a modest boost, but risks remain. Slowing growth in China, geopolitical tensions, and uneven recoveries in key sectors like manufacturing and services pose significant challenges. As a result, global growth forecasts have been revised downward, with the International Monetary Fund (IMF) projecting growth of around 2.7% for 2024, down from earlier estimates.

Conclusion:

The current wave of interest rate cuts represents a pivotal moment for the global economy. While central banks are trying to navigate a complex environment of cooling inflation and uncertain growth, the cumulative impact of these policies will only become clear in the coming quarters. Investors should remain vigilant, as monetary policy divergence could lead to increased market volatility and new opportunities across asset classes.

Sources: Moneyweb, Marketplace, Julius Baer, Global News.