The first set of interest rate moves by major central banks in 2025 indicates that it will be a year in which heavyweight economies, both developed and emerging, will diverge for a period.

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2024 saw the biggest coordinated global interest rate cut since the financial crisis - almost 15 years ago as inflation reigned in. However, the current round in 2025 has begun with policymakers manoeuvring through an uncertain economic backdrop.

Among the G10 central banks that regulate the most actively traded currencies, three of the four that met last month — Sweden, the ECB, and Canada — persisted with their rate-cutting cycles. On the other hand, Japan, which seldom increases rates, hiked them for the second time in under a year.

Central banks grapple with uncertainty

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The US Federal Reserve and Norway's Norges Bank stayed on the sidelines, and the Bank of England has cut rates this week. The changes come Donald Trump returned to the white house with a bang, launching trade tariff salvos and plans to shred multilateralism and regulation.

The Bank of Canada explicitly cautioned about the risks to its economy, and the Federal Reserve chief indicated the US Central Bank is in no rush to cut rates anytime soon.

In emerging markets, three central banks cut and one raised rates in January.

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While South Africa and Indonesia chose to keep their rates unchanged, turkey reduced them by 0.25 per cent, bringing them down to an eye-watering 45 per cent. Brazil has been struggling owing to concerns about its debt load.

At its most recent meeting, it hiked rates by one per cent and has already pencilled in another increase for March. The Reserve Bank of India cut rates for the first time since May 2020, while China's central bank kept its powder dry as it waited for the tariff hit from Washington.

Most major central banks in the developed market, barring Japan, are expected to continue with their bias for easing policy this year. However, if Trump's trade battle turns ugly and inflationary as expected, central banks in Europe, Canada, and Australia are likely to be hit the hardest.

The real question is: should policymakers be wary of inflationary pressures as an expected fallout from the tariff wars or should they focus on growth measures? For now, central banks are grappling with uncertainty in 2025's foggy economic landscape.

(With inputs from the agencies)