Rate Holds Dominate as Major Central Banks Navigate a Fragile Global Economy

Monetary policymakers from the world’s largest economies are opting to play a cautious hand. This week, the US Federal Reserve, Bank of Japan (BoJ), Bank of England (BoE), People’s Bank of China (PBoC), and Sweden’s Riksbank all announced they would hold their respective interest rates steady. The synchronised restraint reflects a collective strategy to navigate an increasingly uncertain global economic environment. Unfortunately, no central bank appears to be holding an ace card — although Federal Reserve Chair Jerome Powell hinted at two rate cuts that may yet come into play this year.

Different Circumstances, Same Decision

While the rate hold decision was universal among these institutions, the conditions influencing each central bank’s strategy remain markedly different.

In China, policymakers are battling economic headwinds and weak domestic demand. According to China’s National Bureau of Statistics, retail sales rose 4% year-on-year in January and February 2025, a slight improvement over December 2024’s 3.7% increase. However, consumer price data is concerning. The national Consumer Price Index (CPI) fell 0.7% year-on-year in February, confirming deflationary pressures that have prompted officials to revise their annual inflation target to “around 2%” from the previous 3% benchmark.

The People’s Bank of China has indicated further easing may be on the horizon to stimulate consumer activity and help meet Beijing’s 5% growth target for 2025. The prospect of lower rates and additional stimulus measures underscores China’s distinct approach as it seeks to revitalise its post-pandemic economy.

Sweden’s Riksbank also left rates unchanged, emphasising the importance of stability in a complex geopolitical landscape. On Thursday, the central bank announced its key rate would “remain going forward”, signalling a wait-and-see approach. Sweden faces “substantial global turbulence,” much of it stemming from the US administration’s threats of new international tariffs. Yet, the Riksbank also noted that an anticipated increase in EU defence spending could mitigate trade risks and provide a stabilising force for the Swedish economy.

The Reluctant Players: Bank of Japan and Bank of England

Japan’s monetary policy remains firmly accommodative. The Bank of Japan has been telegraphing a rate hike later in 2025 to address rising consumer prices. Officials have referred to the “evolving situation regarding trade” as a key consideration. Japan has seen inflation inch higher, driven partly by currency weakness and supply chain adjustments. For now, policymakers are waiting for more clarity before pulling the trigger on tighter policy.

Across the globe, the Bank of England finds itself between two uncomfortably close walls: persistent inflation and stagnant growth. Inflation hit a 10-month high of 3% in January 2025, according to the Office for National Statistics (ONS). At the same time, GDP growth was a tepid 0.1% in the fourth quarter of 2024. The BoE acknowledged its precarious position in a statement on Thursday, reiterating that “monetary policy will need to continue to remain restrictive for sufficiently long” to counteract the potential economic fallout from trade disputes and geopolitical uncertainties.

The Federal Reserve: A Calculated Wait

In Washington, the Federal Reserve also elected to hold its benchmark rate steady, projecting a cautiously optimistic outlook. Economic growth forecasts have been trimmed: GDP is now expected to expand by 1.7% in 2025, revised downward from a 2.1% forecast made in December 2024. Inflation, however, is projected to rise to 2.7%, up from an earlier estimate of 2.5%. Powell stated on Wednesday that inflationary pressures have partly increased due to newly imposed tariffs. Despite this, the Fed still anticipates cutting rates twice before the end of the year, as officials seek to balance slowing growth with price stability concerns.

The Outsider: Switzerland Breaks Ranks

One major central bank did buck the trend: the Swiss National Bank (SNB). On Thursday, the SNB cut its policy rate by 25 basis points to 0.25%, following a more aggressive 50 basis-point cut in December 2024. This marks the fifth consecutive reduction since March 2024, reflecting a significantly different inflation landscape in Switzerland.

Annual inflation in Switzerland registered at a mere 0.3% in February 2025, according to official data from the Federal Statistical Office — the lowest rate in four years. A strong Swiss franc has further curbed imported goods prices, particularly from the Eurozone. Yet even Switzerland’s policymakers signalled a more cautious stance ahead. The SNB warned that the “backdrop of increased trade and geopolitical uncertainties” could introduce new risks, potentially halting further cuts.

Monetary Patience in an Uncertain World

Amid complex domestic pressures and evolving global risks, the world’s major central banks are exercising rare patience. Inflation trajectories, trade disputes, geopolitical instability, and uneven growth are keeping monetary policymakers in wait-and-see mode. The Swiss National Bank may be the only outlier for now, but even its path forward appears less assured than before.

The global economy remains in flux — and in the central banks’ poker game with uncertainty, no one is willing to go all-in just yet.