Central banks split on rates as holds, hikes and warnings arrive in the same week

A week without a common direction

The notable feature of this week in monetary policy is how little the major central banks agree with each other. One bank surprised markets by doing nothing, another held rates while describing inflation as broadly on target, a third is expected to raise rates, and a fourth is openly weighing how much more tightening is needed. For bankers, that divergence matters more than any single decision, because funding costs, deposit pricing and loan demand will not move in step across markets. m:…6570 m:…5575 m:…5398 m:…3829

The clearest surprise came from New Zealand. The Reserve Bank of New Zealand left the Official Cash Rate unchanged last week, even though markets had priced approximately a 98 percent probability of a 25 basis point increase, and major domestic analysts had concurred with that expectation. Westpac New Zealand Economics, which had shifted its own call to a hike following CPI data, later said it had put too much weight on market pricing and short-term inflation drivers, and described the decision as the biggest shock to markets outside of a crisis period in over 20 years. m:…6570

Japan holds, with tightening still on the path

The Bank of Japan also held, deciding to maintain the uncollateralized overnight call rate at around 1.25 percent. The board rejected a proposal from Policy Board member Takada to raise the rate to around 1.5 percent. At the same time, the bank judged that the underlying inflation rate is at a level generally consistent with its 2 percent price stability target, while saying it does not intend to issue a formal declaration of achieving that target. m:…5575

The hold is not a pause in every sense. The Bank of Japan plans to continue raising the policy interest rate in accordance with economic, price and financial conditions, and it will increase its annual ETF sales pace to approximately 860 billion yen on a book-value basis, a pace equal to 0.1 percent of total market trading value. It will also continue to sell J-REITs at about 5 billion yen per year. The combination points to a bank normalising its balance sheet while keeping the timing of the next rate move tied to incoming conditions rather than a preset date. m:…5575

Britain heads the other way

Britain is the outlier in the other direction. ING expects a 7-2 vote to hike interest rates at the Bank of England November 5 meeting, and expects a follow-up hike in February. Headline CPI is expected to peak above 4 percent early next year, and market pricing already includes more than four rate hikes by this time next year. ING describes the move as an insurance measure against potential second-round inflation effects, even though there is currently no evidence of such effects in the UK. m:…5398

The expected vote is not unanimous, and the dissent tells its own story. Swati Dhingra and Alan Taylor are skeptical of the need for higher interest rates, and Sarah Breeden is a likely candidate for additional dissent at the November meeting. Private-sector wage growth is at 3.4 percent year on year, and sterling is currently outperforming due to expectations of higher Bank of England interest rates. In other words, the hike, if it comes, would be driven more by an energy shock and inflation insurance than by a labour market running hot. m:…5398

Slovakia warns against waiting

Slovakia adds a warning to the mix. The governor of the National Bank of Slovakia is considering the magnitude of further action required, with inflation picking up again and underlying inflation not settled at the target level. Inflation risks are pointing up while growth risks point down, and the governor doubts that price pressures will fade fast enough with current market-priced tightening. The central bank held rates steady last week, and new forecasts and information will be available by December. m:…3829

The pressures behind that warning are broad rather than narrow. Energy prices are almost 20 percent higher than a year ago, a weaker exchange rate is making imports more expensive, and food prices are edging higher. At the same time, demand and the labour market are currently calmer than in 2021 and 2022, wages are not currently chasing prices, and economic growth has held up despite two rate hikes. Fiscal policy is currently supporting demand, and the governor links higher borrowing costs to a lack of fiscal prudence. This suggests the next Slovak decision will turn on how much tightening is needed, not only on whether to act. m:…3829

What borrowers already pay

The euro area statistics for September 2026 show why the policy debate feels different from the borrowing reality. The composite cost-of-borrowing indicator for new loans to corporations increased by 13 basis points to 3.90 percent, while the indicator for new household loans for house purchase remained broadly unchanged at 3.62 percent. New loans to households for consumption became cheaper, falling 12 basis points to 7.82 percent, while new loans of over 1 million euros with a floating rate and an initial fixation of up to three months rose 17 basis points to 3.51 percent. m:…1026

Deposit pricing moved up on both sides. The composite rate for new deposits with agreed maturity from corporations increased by 23 basis points to 2.48 percent, and the equivalent household rate rose 19 basis points to 2.37 percent. Overnight deposit rates for corporations increased by 7 basis points to 0.68 percent, while household overnight rates remained broadly unchanged at 0.30 percent. Corporate borrowing got dearer while household mortgage pricing held steady. m:…1026