ZE Monetary Policy Watch: A Review and Outlook on September Global Central Bank Rate Decisions

By Chinedu Okoye 

1.0 Review of Monetary Policy Decisions so far in the Month:

The notable central bank rate decisions in September across the world and relevant to Zero Equilibrium were; The European Central Bank (ECB); US Federal Reserve (Fed); Bank of Canada (BoC); Bank Of Ghana (BoG); Bank of England (BoE). 

2. The Reserve Bank of Australia, Central Bank of Nigeria; Swiss National Bank schedules for September 30, 22nd, and 25th respectively.

3. The decisions of the Central Banks in the first Paragraph is briefly outlined, explained and analysed, in this section (1.0). The next section (2.0), comprises of the outlook for the latter (yet to be announced category would follow).

1.10 Central Bank Rate Decisions:

The Bank of Canada and the Federal Reserve cut benchmark rates by 25bps each, with both parties siting labor market and broader economic concerns. Ontheotherhand, the European Central Bank held rates steady, singlalling an end to it's cutting cycle.

Also holding was the Bank of England, on sticky inflation fears, following a ‘hawkish cut’ by the Federal Reserve. The most aggressive move in the week was made by the bank of Ghana.

1.11 The European Central Bank (ECB):

The European Central Bank held interest rates steady, with inflation targets for the medium term still set at 2%, it noted that the rate cuts may be near an end, unless downside risks materialize, as it looks at the data and stocks to a meeting-by-meeting approach.

1.12 US Federal Reserve:

The Federal Reserve cut it's Fed's Funds Rate by 25bps to the 4-4.25% range from 4.25% - 4.5% prior. Though it signalled more cuts – a possible total of 75bps for the year including the Tuesday cut– it left markets unimpressed with a hawkish tone. As Jerome Powell the Fed chair minced no words saying the Bank is ready to adjust it's monetary policy stance should the data suggest otherwise.

How the Fed moves would depend on a combination of factors but depends heavily on labor market conditions and inflation, which still hovers around 2.9% and unemployment at 4.3% in August.

1.3 Bank of Canada::

Cut its policy rate by 25bps to 2.50% (overnight rate) on September 17.
The rationale was softer economic growth, a cooling labour market, and less upward pressure on inflation.

The BoC highlighted uncertainty, especially from trade and global inflation spillovers, signalling a willingness to cut further should these risks increase.

However, because inflation remains somewhat above target in some core measures, cuts beyond this will be data-dependent. Markets likely expect modest easing later in the year unless things improve more strongly.

1.14 Bank of Ghana (BoG) :

Made the most dramatic move as it lowered its Monetary Policy Rate by 350 basis points to 21.5%

This came after inflation had been declining for several months. The BoG expects inflation to continue falling, projecting it to reach the medium-term target of 8 ± 2% by Q4. Inflation currently stands at 11.5%.

In it's statement, it stated that it will monitor trends and act to reinforce the disinflation process. With inflation easing, there's likely less immediate pressure to raise rates any time in the near-term so we (Zero Equilibrium) expect the Bank to hold at it's next meeting.

But, some risks remain from utility/energy price shocks, making core inflation a key figure to monitor for central bankers and investors exposed to Ghanaian assets.

The large cut implies a commitment to supporting growth and confidence inflation is under sufficient control. BoG will need to ensure reserves, fiscal discipline, and strong monetary policy transmission hold.

1.15 The Bank of England (BoE):

The BoE held its bank rate at 4.00% in its latest meeting. Inflation is still above its target at  3.8%, and the Bank noted that challenges in this regard persist, as it aims to balance monetary stability with real economic decline.

It's Quantitative Tightening program was also cut by 30% as planned Gilt sales was reduced from £100 billion to £70 billion, as it waits to ease market stress.

This policy move by seems prudent, in that liquidity has been prioritised even as borrowing costs remains relatively flat. Given persistent inflation and softening growth, the BoE seems to be in a cautious holding pattern.

Future cuts are likely to be slow and conditional on stronger evidence of inflation falling sustainably, especially given external pressures (energy, global inflation) and sterling weakness.

2.0 ZE Monetary Policy: Outlook for Rate Decisions Coming up in the last two weeks of September: RBA, CBN and SNB in Focus

Three central banks that are yet to meet include; The Central Bank of Nigeria, the Swiss National Bank (SNB), and the Reserve Bank of Australia. But our outlook and expectations are laid out nonetheless. We give an outlook on possible decisions by these Banks (RBA, CBN, SNB), taking into account the reality of the  [sticky inflation, currency, and broader economic] risks they carry.

2.10 ZE Expectations for RBA Rate Decision:

We follow the market sentiments in expecting that the RBA may hold rates rather than cut. This is because, inflation pressures (especially in housing/services/wages) remain sticky. Meaning employment costs, housing and services sector wide prices are still rising above desired levels. 

I'll be watching labour market data, export commodity prices, and FX strength. The first two are covered to be out before the Reserve Bank meets on the 30th.

It's  ‘labor force’ data for headline employment and unemployment figures get released on Thursday 25th September, whilst the export/commodity price data the RBA Commodity Index is expected on the 30th.With Australia being a commodity strong economy, the commodities price data has bearing on the strength of the Australian Dollar and by extension inflation expectations.

Australia releases quarterly CPI as opposed to monthly , and the next is due on the 29th of September, a day before the RBA meets. 

In Q1: Headline CPI rose +0.9% quater-on-quater, whilst the annual figure rise +2.4%. In Q2 the growth reduced to +0.7% q-o-q, and 2.1% y-o-y, a 20bps and 30bps reduced growth.

2.10.1 Inflation Expectations:

The Reserve Bank of Australia (RBA) anticipates that headline inflation will rise above 3% in the second half of 2025 due to the unwinding of electricity rebates and other cost-of-living relief measures.

This increase is expected to be temporary, with inflation projected to return to the RBA's target range of 2–3% in the latter part of 2025. It is this expectations that lead ZE to expect the Bank to hold benchmark rates steady on the 30th.

A sharp drop in inflation or a deterioration in global demand (especially for Australia’s exports) could push toward a cut. Conversely, if inflation surprises on the upside or the AUD weakens significantly, they may maintain or even tighten rhetoric, though the tightening is expected later in the year, not at the next meeting, save for a surprise upward rock in quarterly CPI numbers.

2.11 ZE Outlook on CBN MPC Monetary Policy Decision:

The Central Bank of Nigeria's Monetary Policy Committee meets on the 22nd for it's 302nd MPC. Expectations by markets and even Zero equilibrium is for 25bps to 50bps cut, even though the idea of a hold is not an unpopular opinion, as even our poll on X (formerly Twitter) were in favour of a hold.

Inflation, FX stability and fiscal balance are expected to weigh in on the Bank's decision, and there is a possibility that they may choose to keep rates high, or moderately adjust down, so as not to slow or disrupt the disinflationary momentum.

2.11.1 ZE Expectations:

A 25bps cut, as I stated on the @0equlibrium handle on @Nairametrics spaces on Thursday the 18th, would be a ‘safe cut’ as yield differentials with the Fed would scarcely be affected seem as the FOMC cut by the same amount. 

This is as I reckon that the Bank will want to show commitment to easing when necessary as it prioritizes stability as well. So any move downwards would be cautious so as not to reignite inflationary pressures via currency risks which would invariably affect import costs – a variable that has a larger effect on businesses and consumers than borrowing costs.

A 25bps points strikes a balance and satisfies political and industry pressures as well as Naira stability advocates.

Any cut above comes with associated risks such as; a depreciating naira, spikes in food/energy inflation, external shocks (oil prices, global rates). This would be especially so, if US inflation remains sticky at the next reading and the US Fed maintains a hawkish tone.

2.12 ZE Nigerian-Tailored CBN  Monetary Policy Recommendations:

The CRR Angle: As reiterated before, an adjustment to CRR is deue, necessary and more effectual in terms of money supply increases than even deep monetary policy rate cuts. With strict compliance to the loan-to-deposit ratio (set at 65%) and  penalties involved for noncompliance, a reduction in the Cash Reserve Ratio by 10% to 15%, would translate to increased availability of loanable funds.

It is expected that, this would have some bearing on effective interest rates offered, by putting a cap on it, or even forcing marginal declines as banks compete with other FIs in the crdti market.

2.13 ZE Outlook and Expectations for Swiss National Bank (SNB);

With inflation in Switzerland projected to be very low (SNB has forecasts showing inflation at ~0.2% for 2025, rising slightly in 2026/2027) and with strong external pressure (strong franc etc.), the SNB would most likely hold and may even contemplate a cut if growth slows.

However, Switzerland traditionally moves cautiously given its strong currency and export orientation. A strong franc would weigh on exports and could push SNB to ease if inflation remains persistently under target.

Energy and input costs remain the biggest risks to inflation. However oil prices have stays cool, so a cut given the persistence in USD strength and the hawkish tone of the Fed chairman, could be excessive even at shallow 25bps.