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HomeboeCentral Banks in Major Developed Economies Hold Rates Steady in October

Central Banks in Major Developed Economies Hold Rates Steady in October

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Central banks across major developed economies chose to keep interest rates unchanged in October, marking the first time since January that there were no rate hikes. While emerging markets in Latin America and much of central Europe continued with easing measures, Asian countries tightened their monetary policies. Five of the central banks overseeing the 10 most heavily traded currencies, including the Bank of Japan, the European Central Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand, and the Bank of Canada, decided to maintain their benchmark rates, according to Reuters data.

On the other hand, central banks in Sweden, Switzerland, Norway, Great Britain, and the United States did not hold any rate setting meetings in October. In contrast, September witnessed three major developed central banks implementing rate hikes, bringing the year-to-date total to 1,150 basis points (bps) across 36 hikes among G10 central banks.

Despite inflation remaining higher than central banks’ targets, the recent surge in global bond yields, particularly at the long end of the yield curve in both developed and emerging markets, has significantly changed the landscape. Analysts believe that the higher yields may be acting as a form of tightening for the Federal Reserve, the Bank of England, and the European Central Bank. As a result, central bankers are increasingly opting for a pause to assess the impact of previous rate hikes on the economy. Fabiana Fedeli, chief investment officer at M&G Investments, stated that the Federal Reserve is likely closest to the end of its rate hike cycle.

In the emerging economies, the divergence in rate trajectories persisted in October, with 12 out of 18 central banks in the Reuters sample holding meetings. Latin American countries and central and eastern Europe are leading the easing cycle, with Chile, Hungary, and Poland collectively cutting interest rates by 150 bps. Credit strategist Barnaby Martin at BofA Securities noted that the return to rate cuts is a response to the previous hiking cycle, which was deemed too fast and intense for some emerging markets. The current rate cuts resemble those implemented in the summer of 2020 when policymakers were addressing the repercussions of the COVID-19 pandemic.

In contrast, Asian central banks are still in a tightening cycle, with Indonesia and the Philippines raising rates by 25 bps each. Russia and Turkey, facing pressures on their currencies due to specific circumstances rather than the global environment, raised their benchmarks by 200 bps and 500 bps, respectively. Central banks in Brazil, Mexico, South Africa, Thailand, Malaysia, and the Czech Republic did not hold meetings in October.

As of now, the total number of rate hikes for the year stands at 4,225 bps across 34 moves, while policymakers have also implemented 570 bps worth of rate cuts through 11 actions. The U.S. Federal Reserve is expected to announce its interest rate decision later on Wednesday.

More detail via Investing.com here… ( Image via Investing.com )

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