Fed to lead rate-cutting wave as global monetary policy diverges

Central banks to extend rate-cutting cycle through year-end: The Federal Reserve and several major central banks are expected to continue lowering interest rates for the remainder of 2025, according to Bloomberg Economics. Some 15 banks are projected to cut borrowing costs, while most of Western Europe pauses to gauge inflation trends. Only the Bank of Japan is expected to raise rates.

The drivers: Common factors influencing these decisions include persistent inflation concerns, the economic impact of US trade tariffs under President Trump, and domestic political pressures. While the overall direction is toward lower borrowing costs, the pace is tempered by economic resilience and lingering price pressures, Bloomberg’s analysts say.

#1- Fed to deliver two more cuts amid political pressure: The US Federal Reserve is forecast to reduce rates twice more this year after its September cut, bringing the federal funds rate down to 3.75% by year-end from its current 4.25%. Markets expect quarter-point cuts at each of the two remaining 2025 meetings, as officials aim to balance labor market support with inflation risks tied to Trump’s tariff. “The Federal Open Market Committee is in a bind — cut too fast and tariffs could fuel inflation; move too slowly and the labor market weakens,” Bloomberg Economics’ Estelle Ou said.

#2- ECB, BOE hold steady as inflation lingers: The European Central Bank is expected to keep its deposit rate at 2% through next year, with policymakers signaling comfort with current levels as inflation steadies near target. The Bank of England is also expected to hold its 4% rate amid renewed inflation concerns, with Governor Andrew Bailey warning of caution ahead of November’s budget. Bloomberg Economics’ Dan Hanson sees the BOE’s terminal rate at 3.5%, noting cuts may resume only after clearer disinflation signs emerge.

#4- Japan set to tighten policy amid rising prices: The Bank of Japan could raise its benchmark rate to 0.75% this year from 0.5%, as inflation stays near 3%. Governor Kazuo Ueda’s hawkish tone and dissent within the board have strengthened expectations for a hike, possibly in October. “Even dovish board members now see a case for tightening — the BOJ probably thinks it’s safe to move,” said Bloomberg Economics’ Taro Kimura.

#5- Asia’s outlook is mixed: The People’s Bank of China is expected to deliver limited 4Q easing, trimming its 7-day reverse repo rate to 1.3% from 1.4% as it balances deflation risks with stock market stability. The Reserve Bank of India could cut rates twice before February, lowering its repo rate to 5.25% from 5.5% after a sharp downward revision to inflation forecasts. The Bank of Korea is also leaning toward further cuts, potentially reducing its policy rate to 2.25% from 2.5% as soon as this month or the next to support domestic demand.

#6- Canada, Australia to continue gradual easing: The Bank of Canada — which lowered its key rate to 2.5% in September — is expected to cut once more in December to 2.25% before pausing in 2026 as growth weakens under tariff pressures. The Reserve Bank of Australia is nearing the end of its easing cycle, with one final 25-basis-point cut expected in November to bring the cash rate to 3.35%, as policymakers assess inflation momentum, with Bloomberg projecting a gradual decline to 3.35% by the end of 2025.

MARKETS THIS MORNING-

Asian markets are mixed this morning, with both Japan’s Nikkei and the Shanghai Composite up over 0.5%, while Hong Kong’s Hang Seng is inching down 0.7%. Wall Street futures are indicating a slightly lower opening after record highs for the S&P 500 and Nasdaq.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.7% yesterday on turnover of SAR 6.2 bn. The index is down 3.6% YTD.

In the green: Marafiq (+10.0%), Saudi Re (+6.8%) and Ma’aden (+4.6%).

In the red: Sport Clubs (-3.0%), Bahri (-2.8%) and Etihad Etisalat (-2.4%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.3% yesterday on turnover of SAR 40.5 mn. The index is down 18.9% YTD.

In the green: Future Vision (+8.0%), Group Five (+7.6%) and CMCER (+7.1%).

In the red: Dar Almarkabah (-9.3%), Inmar (-9.0%) and Leaf (-7.5%).

CORPORATE ACTIONS-

Derayah Financial Company’s board approved the distribution of up to SAR 80.4 mn in interim dividends for 3Q 2025 at SAR 0.33 apiece, the firm said in a Tadawul disclosure yesterday. The distribution is scheduled to start on Thursday, 23 October.

The Capital Market Authority approved National Environmental RecyclingCompany’s (Tadweeer) plan to double its capital to SAR 232.3 mn through a one-for-one bonus share issue, the authority said in a statement yesterday. The increase will be funded from the company’s share premium, retained earnings, and statutory reserve accounts, raising total shares from 116.2 mn to 232.3 mn. An extraordinary general assembly meeting will be held within six months to finalize the move.

Munawala Cargo received the greenlight from Capital Market Authority to raise its capital by 50% to SAR 30 mn through a bonus share issuance, the authority said in a statement yesterday. The SAR 10 mn increase will be funded by transferring retained earrings, granting shareholders one bonus share for every two held. The move still needs shareholder and regulatory approvals.