Central bank watch: watchful and wary easing ahead

Franklin Templeton assesses the monetary policy outlook for the Group of 10 central banks, as well as China and South Korea, as 2025 begins.

The US Federal Reserve has entered a “new phase”, chair Jerome Powell said in December, as inflation shifted into focus and the Fed signalled just two rate cuts this year.

The Bank of Canada, the European Central Bank and the Bank of Korea are all expected to cut by 25 basis points this month, with the Bank of Japan (BoJ) projected to raise its policy rate by the same amount – the only central bank expected to hike when it makes its next rate change.

Franklin Templeton ranks BoJ as most hawkish, with its policy rate currently at 0.25%, and the People’s Bank of China as most dovish.

After pausing its monetary easing in late-September, China will need to balance any cuts with the risk of yuan depreciation, the potential for additional US tariffs and a widening US-China interest rate differential, in a strong US dollar environment.

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