European Central Bank holds rates steady in last gathering of 2025

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Investors are assessing the last interest-rate decisions of 2025, with four of Europe’s central banks announcing their monetary policies and macroeconomic outlooks on Thursday.

The European Central Bank, Bank of England, Riksbank, and Norges Bank all concluded meetings today, but only one of them changed its base rate.

European Central Bank

The ECB kept rates on hold on Thursday, as widely expected.

Ahead of the vote, investors were more interested in any commentary on the apparent growing tensions inside the governing council, with some members, like Isabel Schnabel, openly endorsing the market’s view that the next rate move will be a hike, while others think there is still room to cut. 

Christian Kopf, who heads the bond portfolio management of German asset manager Union Investment, told CNBC: “I don’t expect and rate change in the Euro area for the time being. If there is a change in 2026, most likely we will get a rate hike towards the end of 2026 or at the beginning of 2027.”

The ECB hiked its growth outlook for the euro zone, predicting growth of up to 1.4% in 2025 and 1.2% in 2026.

Norges Bank

Norway’s central bank kept rates on hold at 4% on Thursday, with economists suggesting the next rate cut might not come until summer 2026. Norges Bank announced its policy decision at 10 a.m. local time, 9 a.m. London time.

The bank said Thursday that the outlook is uncertain “but if the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of the coming year.” For now, however, Norges Bank’s policymakers judged “that a restrictive monetary policy is still needed.  Inflation is still too high.” It added that its current forecast “is consistent with 1-2 rate cuts next year.”

Morten Lund, Scandinavia chief economist at JPMorgan, had commented before the rate hold that the bank’s guidance on Thursday “should be a push-back against markets’ rising expectations” that it will cut rates in March, which he said was currently seen as “a coin toss.”

Asia Economy Bank of Japan is poised to raise rates to a 30-year high despite economic weakness

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Japan’s central bank on Thursday kicked off its last policy meeting of the year, with expectations that it will raise benchmark interest rates to their highest in 30 years, as it seeks to move ahead with policy normalization set forth last year.

The decision, due Friday, could see rates raised to 0.75% — highest since 1995 — with data from LSEG showing an 86.4% probability of a hike by the Bank of Japan.

A rate hike will likely strengthen the yen against the dollar, and contain inflation, which has run above the BOJ’s target for 43 straight months. But it could further slow a weak Japanese economy that contracted in the third quarter.

Revised GDP numbers showed that Japan’s economy in the three months through September contracted more than initially estimated, shrinking 0.6% quarter on quarter, and 2.3% on an annualized basis.

With a rate hike almost certain, experts said that market focus will be more on the BOJ’s commentary after the decision.

Gregor MA Hirt, global multi-asset chief investment officer at Allianz Global Investors, said in a Tuesday note that the market reaction will depend on the nuances of the BOJ’s communication.

Signals around the neutral, or terminal, rate — one that balances inflation and economic growth — and comments on yen weakness will be some of the things to look out for.

Governor Kazuo Ueda reportedly said earlier this month that it was difficult to estimate the terminal rate, with the central bank pegging it at 1% to 2.5%.

“Unfortunately, the neutral rate of interest is a concept for which we can only produce an estimate with quite a wide range,” Ueda told Japan’s parliament.

While efforts have been made to narrow the rate range, Ueda said that the BOJ must guide monetary policy without clarity on where exactly the neutral rate lies.

Carl Ang, fixed income research analyst at MFS Investment Management, said that an updated estimate on the neutral rate may be shared after the Friday meeting.

Wall St closes higher fueled by tech rally, soft inflation data

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Dec 18 (Reuters) - Wall Street's main indexes closed higher on Thursday as a soft inflation report fed expectations for interest rate cuts by the Federal Reserve, while chipmaker Micron's blowout forecast signaled strong AI demand.
The Consumer Price Index report showed that consumer prices increased less than expected in the year to November. The Labor Department's Bureau of Labor Statistics did not publish month-to-month CPI changes after the 43-day shutdown of the government prevented the collection of October data.
"The constructive CPI report ... starts to ease pressure on policymakers further to potentially get more comfortable cutting rates next year," said Bill Merz, head of capital markets research at U.S. Bank’s Asset Management Group. "We’ll want to see follow-through next month to ensure there wasn’t too much noise from the shutdown."
The three major indexes rebounded from three-week lows. And the Russell 2000 index (.RUT), opens new tab, tracking rate-sensitive smallcaps, also advanced.
A jobless claims report showed new applications fell last week, reversing the prior week's surge and suggesting labor market conditions remained stable in December. Earlier this week, an official jobs report showed U.S. job growth rebounded in November and the unemployment rate rose to 4.6%.
According to preliminary data, the S&P 500 (.SPX), opens new tab gained 52.48 points, or 0.78%, to end at 6,773.91 points, while the Nasdaq Composite (.IXIC), opens new tab gained 311.60 points, or 1.37%, to 23,004.92. The Dow Jones Industrial Average (.DJI), opens new tab rose 69.36 points, or 0.14%, to 47,955.33.
Consumer discretionary stocks (.SPLRCD), opens new tab gained as Lululemon (LULU.O), opens new tab surged on a report that activist investor Elliott has acquired more than a $1 billion stake in the athletic-wear company. Starbucks (SBUX.O), opens new tab also rallied.
Among tech stocks, Micron Technology (MU.O), opens new tab jumped after the company forecast quarterly profit at nearly double what analysts were expecting on strong artificial intelligence-related demand.
Other memory companies including SanDisk (SNDK.O), opens new tab and Western Digital (WDC.O), opens new tab also surged, while the Philadelphia SE Semiconductor Index (.SOX), opens new tab climbed.