Interest Rate Expectations: BoE and RBNZ Reprice Hawkishly, Fed and RBA Turn Dovish
Key Takeaways
- •Markets still price a year-end Bank of England rate hike at 38 basis points, including a 93% probability of an increase at the November meeting after a solid UK GDP report.
- •The Reserve Bank of New Zealand, which lifted its policy rate to 2.75% in September, has 39 basis points of tightening priced by year-end and an 87% probability of a hike at its next meeting on energy-cost inflation concerns.
- •Despite higher-than-expected US inflation data, the Federal Reserve saw a dovish repricing, with an 85% probability of no change at the next meeting and falling Treasury yields pointing to growing growth concerns.
- •Australia's September employment report, showing an unexpected 39,300 decline in jobs and unemployment at a five-year high of 4.7%, pushed Reserve Bank of Australia expectations toward holding rates steady for longer.
- •Rate expectations for the European Central Bank, Bank of Canada and Swiss National Bank were broadly unchanged, with pricing at those banks implying a high probability of no change at upcoming meetings.
Markets made only modest adjustments to global interest rate expectations this week, with pricing still pointing to rate hikes by year-end from the Bank of England (BoE) and the Reserve Bank of New ZealandRBNZ), while most other major central banks are expected to hold policy steady at their next meetings.
The BoE and RBNZ saw a slightly hawkish repricing, while the Federal Reserve and the Reserve Bank of Australia (RBA) moved in a more dovish direction. Expectations for the European Central Bank (ECB), the Bank of Canada (BoC) and the Swiss National Bank (SNB) remained unchanged.
Rate expectations of this kind matter because market-implied policy paths feed into borrowing costs, currency valuations and broader financial conditions, so even shifts of a few basis points can be meaningful. This week's repricing was largely data-driven, with UK GDP, US inflation and Australian employment reports each moving expectations, making the upcoming economic calendar, along with the BoE and RBNZ decisions due by year-end, the natural focal points for tracking where pricing heads next.
Market pricing by year-end
| Central bank | Priced by year-end | Next-meeting pricing | Total tightening priced by end-2027 |
|---|---|---|---|
| RBNZ | 39 bps | 87% probability of a rate hike | 115 bps |
| BoE | 38 bps | 93% probability of a rate hike | 105 bps |
| Fed | 25 bps | 85% probability of no change | 75 bps |
| ECB | 25 bps | 90% probability of no change | 69 bps |
| BoC | 20 bps | 72% probability of no change | 101 bps |
| BoJ | 18 bps | 99% probability of no change | 86 bps |
| RBA | 11 bps | 76% probability of no change | 18 bps |
| SNB | 5 bps | 79% probability of no change | 59 bps |
The 2027 figures indicate the total amount of tightening expected by the end of 2027, not how much is expected in 2027 alone. For readers newer to this data, a basis point is one-hundredth of a percentage point, so the 39 bps priced for the RBNZ amounts to roughly a quarter of a percentage point of expected tightening. Last week's market pricing is available here.
Bank of England
The BoE saw a modest hawkish repricing as markets reinforced expectations of a rate hike in November following a solid UK GDP report. Governor Bailey recently said that second-round effects from higher energy prices appeared subdued so far, but warned it was still too early to draw firm conclusions. The central bank therefore remains cautiously hawkish, and the November decision now stands as the next formal checkpoint for that pricing.
Reserve Bank of New Zealand
The RBNZ also saw a slightly hawkish repricing on concerns that higher energy costs could keep inflation elevated for longer, requiring further monetary tightening. The bank raised its policy rate to 2.75% in September, citing inflation above its target range and an economic recovery that appeared to be resuming. Although weaker household spending and labour market slack remain key risks, the RBNZ has indicated that further increases may be needed if inflation pressures persist.
Federal Reserve
Despite higher-than-expected US inflation data, the Fed saw a minor dovish repricing, especially further out the curve. Treasury yields fell following the inflation data, possibly suggesting that markets are becoming increasingly concerned about growth.
Reserve Bank of Australia
The RBA saw a dovish shift after Australia's September employment report. Employment unexpectedly fell by 39,300, while the unemployment rate held at 4.7%, its highest level in five years. The report reduced expectations for another rate hike, with markets pricing a higher probability of the RBA holding rates steady for longer. Labour market conditions may be weakening enough to limit the need for further tightening, even as inflation remains a concern.
European Central Bank
ECB rate expectations were broadly unchanged, with no major new developments. The central bank continues to face a difficult balance between higher energy-driven inflation and the risk that prolonged supply disruptions will weaken economic activity. Recent bond market woes have also strengthened the case for a more patient approach following the recent tightening.
Bank of Canada
The BoC likewise saw little change in rate expectations. Canadian inflation and labour market data continue to support a patient approach, especially given the ongoing tariff issues with the US.
Swiss National Bank
SNB expectations remained stable, reflecting Switzerland's subdued underlying inflation and the recent strength of the Swiss franc on safe-haven flows. A stronger franc can help contain imported inflation, partly offsetting the impact of higher global energy prices, a mechanism that is particularly strong for Swiss inflation.
