Istanbul: The world's central banks are concluding a turbulent 2025 marked by global economic uncertainties driven by US tariffs, geopolitical tensions, and significant political developments, which have constrained their ability to ease policy in the face of inflation-related risks.
According to Anadolu Agency, Washington's protectionist trade policies, highlighted by US President Donald Trump's tariff decisions in March and April, significantly heightened global trade tensions. These tariffs had direct repercussions on major economies including China, Japan, the EU, Canada, and Mexico, positioning them as central figures in the ensuing trade disputes.
While some relief was observed in the latter half of the year with new trade agreements, ongoing conflicts such as the 12-day air strikes between Iran and Israel and the unresolved Russia-Ukraine War continued to cast a shadow over the economic outlook. Furthermore, the US federal government experienced its longest shutdown in history, spanning 43 days starting October 1, due to budgetary disagreements, disrupting economic data flow in the third quarter.
The year saw the US Federal Reserve implementing a cumulative rate cut of 75 basis points, the European Central Bank (ECB) 100 basis points, the Bank of England (BoE) 100 basis points, the Reserve Bank of Australia 75 basis points, and the Turkish Central Bank an extensive 950 basis points. In contrast, the Bank of Japan (BoJ) increased its rates by 50 basis points.
The Federal Reserve faced a challenging balance between employment and inflation, adopting a cautious policy approach amid a complex economic and financial landscape. Diverging opinions among Fed officials on rate cuts reflected the uncertainties surrounding inflation and economic data, leading to a total reduction of 75 basis points, ending the year with a policy rate range of 3.5-3.75%.
The ECB concluded 2025 with significant rate reductions totaling 100 basis points, as eurozone inflation approached its 2% target. ECB President Christine Lagarde noted persistent uncertainties in inflation outlook due to global volatility, even as falling energy prices temporarily suppressed inflation.
In the UK, the BoE pursued controlled easing by cutting rates by 100 basis points to support economic growth, maintaining a policy rate of 3.75% amid 3.2% annual inflation. The BoE is anticipated to make its first rate cut in April next year.
Japan's BoJ diverged with a 50 basis point rate hike, the highest in three decades, reaching a policy rate of 0.75% to address rising inflation risks and potential wage hikes. The BoJ indicated that real interest rates would remain negative, fostering economic activity.
In Oceania, the Reserve Bank of Australia reduced rates by 75 basis points, with the potential for a rate hike next year, while the Reserve Bank of New Zealand made a substantial 200 basis points cut.
Turkey's Central Bank conducted numerous meetings, executing a significant 950 basis points cut, lowering its policy rate to 38%. Turkey's economic strategy facilitated continuous growth and supported its disinflation process, with consumer prices seeing their lowest year-on-year increase in four years.