Bumper Fed Rate Cut Supercharges Central Banks’ Easing Cycle in September – By Reuters

By Karin Strohecker and Sumanta Sen

LONDON – In September, led by the U.S. Federal Reserve, major central banks in developed markets implemented their largest coordinated interest rate cuts since the early days of the COVID-19 pandemic. In contrast, Brazil commenced a new tightening cycle.

Out of the nine central banks that oversee the ten most heavily traded currencies and met in September, five reduced their benchmark rates. The Federal Reserve enacted a significant 50 basis point reduction to initiate its easing cycle, while Sweden, Switzerland, Canada, and the eurozone opted for a decrease of 25 basis points each.

This marked the most substantial easing effort from this group of developed central banks since they collectively lowered rates by 615 basis points in March 2020 to support economies struggling due to the pandemic. The focus has now shifted to the potential depth and duration of the rate-cutting cycle in developed markets.

"After the Fed cut by 50 basis points, their communication was crucial. They indicated that they are vigilant, acknowledging slowing employment growth," noted Tatjana Greil Castro, global co-head of public markets at Muzinich & Co. She added, "Unless there is an external shock, this cycle might be less aggressive, suggesting the U.S. could settle at rates around 3-3.5% and Europe at approximately 2-2.25%."

The situation in emerging markets remains mixed, with the significant cut by the Fed not offering the same flexibility to all nations.

"Central banks in emerging markets must safeguard their currencies and capital flows. They are keen to avoid outflows and the resulting pressure on their currencies," stated Alexis Taffin de Tilques, head of debt capital markets for CEEMEA at BNP Paribas.

Among the 18 central banks sampled in developing economies, 13 held rate-setting meetings in September. Two of these central banks opted to raise rates: Brazil increased its benchmark lending rate by 25 basis points, marking its first hike in two years, while Russia raised rates by 100 basis points as it contends with a weakened rouble.

Conversely, seven emerging market central banks — including Indonesia, Mexico, South Africa, the Czech Republic, Hungary, Chile, and Colombia — reduced their interest rates, collectively lowering them by 200 basis points. The remaining four banks decided to maintain their rates.

These recent moves in emerging markets brought the total number of rate cuts in 2024 to 1,525 basis points across 36 adjustments, surpassing last year’s total of 945 basis points of easing. So far this year, cumulative rate hikes have reached 1,100 basis points.