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Central Banks in Major Economies Pause Rate Hikes as Split Emerges in Emerging Markets

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Central banks in major developed economies have maintained their interest rates in October, marking the first time since January 2022 that no rate hikes were delivered. In contrast, emerging markets have continued to diverge, with Latin America and much of central Europe easing their monetary policies, while Asia tightens.

Among the central banks overseeing the 10 most heavily traded currencies, the Bank of Japan, the European Central Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand, and the Bank of Canada all chose to keep their benchmark rates unchanged in October, according to Reuters data. However, central banks in Sweden, Switzerland, Norway, Great Britain, and the United States did not hold rate-setting meetings.

This is a shift from September, when three major developed central banks implemented rate hikes, bringing the total number of hikes in 2023 to 36, totaling 1,150 basis points (bps) across G10 central banks.

Although inflation remains above central banks’ targets, a recent surge in global bond yields has significantly altered the landscape. The rise in yields at the long end of the yield curve in both developed and emerging markets has prompted analysts to suggest that higher yields may be tightening monetary conditions, leading central banks to adopt a more cautious stance.

Fabiana Fedeli, chief investment officer at M&G Investments, stated, “a pause from central bankers to monitor the impact of previous hikes on the economy is increasingly likely.” Fedeli also added that the U.S. Federal Reserve is likely closest to the end of its rate hike cycle.

In emerging economies, there continues to be a divergence in rate trajectories. In October, 12 out of the 18 central banks in the Reuters sample held meetings. Countries in Latin America and central and eastern Europe, such as Chile, Hungary, and Poland, have extended their rate cutting cycles, reducing benchmarks by a total of 150 bps. This is in response to the fast and aggressive hiking cycle that occurred previously.

On the other hand, Asian central banks, including Indonesia and the Philippines, have raised rates by 25 bps each. Russia and Turkey, facing currency pressures due to idiosyncratic factors, have increased their benchmarks by 200 bps and 500 bps, respectively.

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

Overall, there have been 34 rate hikes in 2023, totaling 4,225 bps, and 11 rate cuts, totaling 570 bps. As central banks continue to navigate the challenges posed by inflation and global market conditions, the future direction of monetary policy remains uncertain.

More detail via CNA here… ( Image via CNA )

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