The global monetary policy landscape witnessed a critical shift in 2025: the rate cut cycle for advanced economies has essentially concluded, while emerging markets show signs of policy divergence. After a 25-basis-point rate cut in October, the Federal Reserve explicitly signaled a “pause until next year” and announced the end of balance sheet reduction in December. Its policy caution stems from inflationary pressures driven by tariffs—new tariffs are expected to contribute 30-50 basis points to core PCE inflation, with categories heavily dependent on Chinese imports (such as toys) seeing particularly notable price hikes.
The European Central Bank (ECB) went a step further, delaying rate cuts until March 2026 and abandoning its previous expectation of two cuts in “December + March.” This decision was primarily fueled by better-than-expected Q3 GDP and inflation data, which provided hawkish policymakers with more room to maneuver. However, the ECB still faces credibility risks due to long-term inflation below its target. The Bank of England is expected to keep interest rates unchanged at 4.00% next week; it will wait for clear signs of inflation easing and the November fiscal budget before launching its first rate cut, possibly as early as February 2026.
Emerging markets, meanwhile, display divergence: Argentina has entered a policy window amid rising expectations of reforms following midterm elections, with the USD/ARS exchange rate projected to drop to 1,450 by year-end. South Africa is expected to cut rates by another 25 basis points to 6.75% in November, after which it will enter an observation period. China has maintained its policy rate at 1.40%, with a potential cut to 1.20% in 2026. The temporary truce in China-U.S. trade is providing short-term benefits to export sectors.
