October Sees G10 Central Banks Reach Rate Plateau as Emerging Markets Diverge – Reuters

By Karin Strohecker and Sumanta Sen

LONDON – In September, major central banks in developed economies refrained from increasing interest rates for the first time since January 2022. This period also highlighted a growing division in monetary policy among emerging markets, where countries in Latin America have opted for rate cuts, while many in central Europe and Asia have focused on tightening measures.

In October, five central banks managing the ten most traded currencies convened for rate-setting meetings. 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 decided to maintain their current benchmark rates. In contrast, central banks in Sweden, Switzerland, Norway, Great Britain, and the United States did not hold rate-setting meetings during this time.

This change follows September, when three significant developed central banks implemented last-minute rate hikes, bringing the total for G10 central banks in 2023 to 1,150 basis points across 36 increases.

Despite high inflation levels still prevailing compared to central banks’ targets, analysts noted that a recent surge in global bond yields has significantly altered the economic landscape.

"The rise in yields may be contributing to monetary tightening for the Federal Reserve, the Bank of England, and the European Central Bank, making it more likely for officials to pause and assess the effects of earlier rate hikes on the economy," said Fabiana Fedeli, chief investment officer at M&G Investments. She also pointed out that the Federal Reserve appeared closest to ending its current rate hike cycle.

In emerging economies, divergent monetary policy paths were evident, with 12 of the 18 central banks in the analyzed sample meeting in October. Latin America, alongside central and eastern Europe, is leading the way in easing, with countries like Chile, Hungary, and Poland reducing their benchmark rates by a total of 150 basis points.

"Banks are quickly reverting to cuts as the previous hiking cycle may have been too aggressive for some," stated Barnaby Martin, a credit strategist at BofA Securities, noting that similar cuts were last seen during the summer of 2020 while managing the impacts of the COVID-19 pandemic.

Conversely, central banks in Asia were still tightening, with Indonesia and the Philippines each increasing rates by 25 basis points. Additionally, Russia and Turkey raised their benchmarks by 200 basis points and 500 basis points, respectively, primarily responding to specific pressures on their currencies.

Central banks in Brazil, Mexico, South Africa, Thailand, Malaysia, and the Czech Republic did not convene in October. Overall, the rate hike tally for the year reached 4,225 basis points across 34 increases, with 570 basis points of cuts across 11 moves.