Steady as she goes

A lot can change in a year. Eleven central banks cut interest rates in January 2025, while only one did so in January 2026.

Last week central banks in Canada, South Africa and the US left policy rates unchanged. The global rate-cutting cycle is running out of steam, though there will still be cuts here and there. Is this good news or bad news?

Those who want to see lower interest rates at all costs, including the current occupant of the White House, will see it as bad news. However, since it largely reflects a stabilisation of the growth outlook it is positive.

Though the global cutting cycle that started around 2023 was initially due to a decline in inflation, many central banks accelerated rate reductions last year in the wake of the sharp increase in US trade tariffs and their associated risks to economic activity. Fortunately, and somewhat surprisingly, the impact of these tariffs has been muted, and global economic growth has remained steady. Most countries did not retaliate to US tariffs and effective tariff rates ended up lower than headline levels, meaning that global trade did not suffer a serious blow. There were also other important factors that supported global growth, including a lower oil price, loose fiscal policy, and the artificial intelligence boom. Judging by the latest guidance from the likes of Meta and Microsoft last week, the AI capex frenzy shows no sign of slowing down.

Overall, global growth has been resilient despite all the uncertainties and unknowns. The International Monetary Fund’s army of economists recently forecast growth of 3.3% this year, in line with the long-term average. Steady, if unexciting.

Click here to read more...