Central Banks Adopt Cautious Approach Amid Economic Challenges

(MENAFN) Central banks around the world are holding onto a cautious approach as they head into the fourth quarter of 2025, weighed down by the ongoing global battle against inflation and the US's shift toward protectionist policies.

Rising concerns about inflation in the US, driven by tariffs, have intensified fears that price pressures could surge, adding to the uncertainty that is already clouding global economic outlooks.

In October, key central banks including the US Federal Reserve, European Central Bank (ECB), Bank of Japan (BoJ), Reserve Bank of New Zealand (RBNZ), and Türkiye’s Central Bank are set to announce critical monetary policy decisions.

The Federal Reserve made its first rate cut of the year in September, reducing the policy rate by 25 basis points to the 4.00% to 4.25% range. Fed Chair Jerome Powell acknowledged that the risk balance had shifted with growing downside risks to employment but emphasized that these factors did not justify a larger, 50-basis-point reduction. Powell added that October's monetary policy decision will hinge on the release of upcoming US employment and inflation data, which is set to be released next month.

Market expectations point to another 25 basis point rate cut in October, with analysts predicting two total cuts of 25 basis points each by year-end. However, some experts speculate that the Fed could delay the next cut, waiting until either October or December, as risks to the job market diminish.

Meanwhile, the Bank of Japan held its policy rate steady at 0.5% this month, and it is expected to maintain this stance during the October meeting, although analysts anticipate a 25-basis-point hike by the end of 2025.

The Bank of Korea kept its policy rate unchanged at 2.5% in August, citing limited economic improvements and the uncertainty caused by tariff-induced pressures on its growth outlook. The next monetary decision will be made on October 23, though predictions remain unclear.

The RBNZ is widely expected to lower its key rate by 25 basis points on October 8.

In Europe, all eyes are on the ECB, which held its key policy rates steady in its most recent meeting on September 11. The bank’s inflation targets for the eurozone remain near the 2% mark. Having reduced its policy rates by 100 basis points earlier this year, the ECB paused further cuts in July. With August's inflation data coming in at 2% year-on-year, officials have signaled that no further monetary easing is expected, and market expectations reflect a decision to maintain rates unchanged on October 30.

In Türkiye, the country’s central bank slashed its policy rate by a significant 250 basis points to 40.5% in September, following a slowdown in inflation in August and stronger-than-expected second-quarter growth. However, weak domestic demand continues to be a challenge. Türkiye’s central bank will announce its next rate decision on October 23.

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