Global monetary policy is starting 2026 in split formation, with some central banks edging toward renewed easing, others holding steady, and a few turning back to tightening as inflation proves uneven across regions.
In Australia, policymakers have already moved in the opposite direction of the 2025 cutting cycle. The Reserve Bank of Australia raised the cash rate target by 25 basis points to 3.85% and framed the decision as a response to a rebound in inflation and stronger demand. “While inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025,” the central bank said, adding that inflation is “likely to remain above target for some time.”
In the United Kingdom, the policy stance is more cautious. The Bank of England has emphasized that the next steps depend on whether wage and services inflation continue to cool, even after reducing its benchmark rate to 3.75% at the end of 2025. “We think that Bank Rate is likely to fall gradually further in future, but that will depend on whether variables like pay growth and services inflation continue to ease.”
The euro area remains in “wait-and-assess” mode. The European Central Bank has kept its key rates unchanged, with the deposit facility rate at 2.00%.
In the United States, markets are still debating how quickly borrowing costs could fall again, and when. One widely cited benchmark for expectations based on futures pricing has been pointing to mid-year as a key inflection point: “Investors are betting that the Fed will cut interest rates twice in 2026, starting in June, according to CME Group’s FedWatch tool, and Fed policymakers see just one cut this year.” The Federal Reserve remains data-driven, but the market path has become more sensitive to inflation surprises, productivity signals, and labor-market cooling.
For investors and businesses, the takeaway is straightforward: 2026 is shaping up as a year where “global rates” are no longer a single story. Diverging policy paths can widen currency swings, reshuffle bond-market leadership, and change which economies can stimulate demand without reigniting inflation.