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Central Banks in Major Developed Economies Pause Rate Hikes in October, While Emerging Markets Show Diverging Paths

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Central banks in major developed economies held off on raising interest rates in September, marking the first time since January 2022 that no rate hikes were delivered. Meanwhile, emerging markets saw a divergence in their monetary policies, with some countries in Latin America and central Europe easing while others in Asia tightened.

Data from Reuters showed that in October, five 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, chose to maintain their benchmark rates. Central banks in Sweden, Switzerland, Norway, Great Britain, and the United States did not hold any rate setting meetings during the month.

This stands in contrast to September when three major developed central banks implemented rate hikes, bringing the total number of rate hikes for G10 central banks in 2023 to 36, amounting to a total of 1,150 basis points.

While inflation remains high compared to central banks’ targets, a recent surge in global bond yields has significantly changed the economic landscape. Analysts suggest that the rise in yields, particularly at the long end of the yield curve, has had a tightening effect, leading central banks to take a pause and assess the impact of previous rate hikes on the economy.

Fabiana Fedeli, chief investment officer at M&G Investments, believes that the U.S. Federal Reserve is nearing the end of its rate hike cycle. Fedeli also noted that higher yields may already be doing some of the tightening work for the Federal Reserve, the Bank of England, and the European Central Bank.

In emerging economies, diverging rate trajectories were evident, with 12 out of the 18 central banks in the Reuters sample holding rate-setting meetings in October. In Latin America and central and eastern Europe, countries such as Chile, Hungary, and Poland continued their rate-cutting cycles to lower benchmark rates by a combined 150 basis points. This reflects a swift return to rate cuts after what some consider to be a fast and aggressive hiking cycle.

Meanwhile, Asian central banks were still in a tightening cycle, with Indonesia and the Philippines raising rates by 25 basis points each. Russia and Turkey, both facing pressures on their currencies due to unique circumstances, increased their benchmarks by 200 and 500 basis points, respectively.

Several central banks in countries such as Brazil, Mexico, South Africa, Thailand, Malaysia, and the Czech Republic did not hold meetings in October.

Overall, in 2023, there have been a total of 34 rate hikes, amounting to 4,225 basis points, while there have also been 11 rate cuts totaling 570 basis points.

This article provides an overview of the recent monetary policy decisions made by central banks across major developed economies and emerging markets. It highlights the absence of rate hikes in developed economies in September, while also discussing the diverging rate trajectories in different regions. The article includes quotes from experts and provides context for readers to understand the impact of global bond yields on central bank decisions. It maintains a balanced and objective tone throughout, adhering to the BBC News style guide.

More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )

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