In October, G10 central banks reached a critical juncture as their hit rate plateaued, while emerging markets took a divergent path, showcasing the complex dynamics of the global economy.
In September, central banks across major developed economies opted to keep their benchmark interest rates unchanged, marking the first time since January 2022 that no rate hikes were delivered. This decision came as emerging markets continued to diverge in their monetary policies, with some countries in Latin America and central Europe easing while others in Asia tightened.
During October, five central banks overseeing the most heavily traded currencies, including the Bank of Japan, the European Central Bank, and the Reserve Bank of Australia, also chose to keep their rates unchanged. However, central banks in Sweden, Switzerland, Norway, Great Britain, and the United States did not hold any rate setting meetings.
The backdrop for central banks has significantly changed due to a recent rise in global bond yields, particularly at the long end of the yield curve. This has led to a pause in rate hikes as central bankers monitor the impact of previous hikes on the economy. Fabiana Fedeli, chief investment officer at M&G Investments, suggested that higher yields may be doing some of the tightening work for central banks.
In emerging markets, rate trajectories continued to diverge in October. Latin American and central and eastern European economies, such as Chile, Hungary, and Poland, extended their rate cutting cycles, lowering their benchmark rates by a cumulative 150 basis points. On the other hand, Asian central banks, including Indonesia and the Philippines, raised rates by 25 basis points each. Russia and Turkey, facing currency pressures, increased their benchmarks by 200 basis points and 500 basis points, respectively.
Overall, the year-to-date tally for rate hikes stood at 4,225 basis points across 34 moves, while rate cuts amounted to 570 basis points across 11 moves. The U.S. Federal Reserve, which was expected to announce its interest rate decision later in October, was considered to be nearing the end of its rate hike cycle.
The divergence in monetary policies reflects the different economic conditions and challenges faced by each region. As central banks navigate these uncertainties, it will be interesting to see how their decisions impact the global economy.