Surprise moves from global central banks: Monetary easing accelerates

While the fight against inflation continues around the world, some of the world's major central banks accelerated their monetary easing in the first half of the year.

While central banks continue to fight inflation, they continue to act cautiously due to uncertainties in the global economy, especially in terms of potential changes in trade strategies.

Concerns that the protectionist trade policy of the United States, the world's largest economy, could strengthen inflationary pressures and negatively affect growth are affecting the decisions of other major economies.

In the first half of the year, the European Central Bank (ECB) cut three key policy rates by 100 basis points each, the Bank of England (BoE) by 50 basis points, the Central Bank of South Korea by 50 basis points, the Reserve Bank of Australia (RBA) by 50 basis points, the Reserve Bank of New Zealand (RBNZ) by 100 basis points and the Central Bank of the Republic of Turkey (CBRT) by 150 basis points.

While the Bank of Japan (BoJ) increased interest rates by 25 basis points in the first half of the year, the US Federal Reserve (Fed), which is the focus of the world, did not change its monetary policy in the first half of the year.

FED DID NOT CURTAIN INTEREST RATE

In the first 6 months of the year, the Fed kept the policy rate, the federal funds rate, constant in its target range of 4.25-4.50 percent.

With the progress made in inflation, the Fed cut interest rates for the first time in 4 years in September last year and lowered the policy rate by 50 basis points.

The Fed, which lowered its policy rate by 25 basis points in November and December of last year, paused the interest rate cuts it had made in three consecutive meetings last year in January.

The Fed maintained its tight stance on monetary policy by not changing the policy rate at its meetings in March, May and most recently in June. Inflation in the US was recorded at 2.4 percent on an annual basis in May 2025, after reaching 9 percent on an annual basis in June 2022, the highest level since 1981.

While the US administration's protectionist trade policy, which came into focus especially after January and whose effects still continue, stands out as the main obstacle to the Fed's easing, concerns about serious fluctuations in global trade have led economic circles to act more cautiously.

The main reason for the Bank's tight stance in the first half of the year was concerns that the medium- and long-term effects of tariffs, which Fed Chairman Jerome Powell frequently emphasized in his press conferences, could increase inflationary pressures and slow growth.

EUROPE REDUCED INTEREST RATE AT EVERY MEETING

The ECB was among the major central banks that continued its monetary easing by lowering its three main policy rates by 100 basis points in the first half of the year. Having reduced rates by 25 basis points in four meetings held since the beginning of the year, the ECB continued its monetary easing stance to suppress ongoing recession concerns in the region.

While ongoing recession concerns and the contraction in manufacturing activity in Europe continue to be one of the main economic agenda items in the region, the ECB is expected to continue its interest rate cut process, albeit intermittently, for the rest of the year.

Analysts noted that the ECB's focus is on reducing the financing costs of companies in the region, and stated that if annual inflation continues to move within a narrow band in the coming period, the Bank may take additional steps to support growth.

KOREA REDUCED, JAPAN INCREASED

While the fight against inflation continues in Asia, the Central Bank of South Korea reduced the policy rate by a total of 50 basis points in the first 6 months of the year in order to prevent the economic slowdown and in parallel with the weakening inflation.

While consumer inflation in South Korea for May was 1.9 percent, below the Bank's medium-term inflation target of 2 percent, the policy rate in the country started the second half of the year at 2.50 percent.

On the Japanese side, a step was taken to tighten monetary policy by increasing interest rates once in the first half of the year. In the statements made by the BOJ, attention was drawn to food inflation caused by rice prices, and it was emphasized that monetary tightness would be increased if price increases exceeded expectations.

While the policy rate in Japan was at 0.5 percent as of July, inflation in the country was at 3.5 percent on an annual basis as of May, in line with expectations.

Analysts said that the BOJ is pricing in a second 25 basis point cut in the second half of the year, and that the country's trade relations with the US and developments in food prices are key indicators for monetary policy.

AUSTRALIA ACHIEVED A FIRST SINCE 2020

In February, the RBA in Australia joined the ranks of central banks that have cut interest rates by cutting its benchmark interest rate by 25 basis points for the first time since October 2020, due to the impact of weakening inflation in the country.

The RBA, which also lowered its policy rate by 25 basis points in May, has implemented a total monetary easing of 50 basis points in the first 6 months of the year. The latest policy text stated that the policy rate was lowered by 25 basis points to 3.85 percent, and that upward risks to inflation had diminished.

The text also indicated that they would be cautious about further easing of monetary policy and emphasized that international developments would be closely monitored.

In New Zealand, the RBNZ has also reduced its policy rate by a total of 100 basis points in three meetings since the beginning of the year, bringing it to 3.25 percent.

The RBNZ, one of the central banks that has loosened monetary policy the most, continued to emphasize that risks to inflation and global trade developments are being closely monitored.

CENTRAL BANK'S LOOSENING OF 150 BASIS POINTS IN THE FIRST SIX MONTHS

In Turkey, the CBRT cut interest rates by 500 basis points in total, 250 basis points in two meetings in the first 6 months of this year, but increased interest rates by 350 basis points in its April meeting.

Thus, the CBRT, which has relaxed by 150 basis points in total since the beginning of the year, reduced the policy rate to 46 percent in the first half of the year.