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In October, G10 central banks overseeing major developed economies continued to maintain their benchmark interest rates, marking a shift from September when some central banks executed their final rate hikes of the year. At the same time, emerging markets demonstrated a varied approach, with some countries in Latin America and central Europe easing their monetary policies, while others in Asia pursued a tightening strategy.
During October, five central banks from the G10 countries, which oversee the 10 most heavily traded currencies, decided to keep their benchmark rates unchanged. These central banks include the Bank of Japan, the European Central Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand, and the Bank of Canada, according to data from Reuters.
Central banks in Sweden, Switzerland, Norway, Great Britain, and the United States did not hold any rate-setting meetings during the month.
This shift in central bank actions contrasts with September, when three major developed economies raised interest rates in what was seen as a last-minute push. These rate hikes brought the total number of basis points increased in 2023 by G10 central banks to 1,150 basis points across 36 hikes.
Despite persistent high inflation levels compared to central banks’ targets, a recent surge in global bond yields, particularly at the long end of the yield curve in both developed and emerging markets, has altered the economic landscape. Analysts suggest that the rise in long-term yields may act as a form of tightening in itself, prompting some central banks, such as the U.S. Federal Reserve, the Bank of England, and the European Central Bank, to pause and assess the effects of previous rate hikes on their respective economies.
Fabiana Fedeli, Chief Investment Officer at M&G Investments, noted that the U.S. Federal Reserve was likely approaching the conclusion of its rate hike cycle.
Concurrently, emerging markets showed a divergence in their rate trajectories as 12 out of 18 central banks in the Reuters sample convened meetings in October.
In Latin America and central and eastern Europe, central banks opted for easing policies. Chile, Hungary, and Poland extended their rate-cutting cycles, collectively lowering benchmark rates by a total of 150 basis points. This shift reflected the view that the previous tightening cycle was perhaps too rapid, and the pace of rate hikes in 2023 was deemed excessive for some economies.
On the other hand, Asian central banks continued with their tightening cycles. Indonesia and the Philippines raised rates by 25 basis points each, and Russia and Turkey, facing pressures on their currencies for unique reasons, raised benchmark rates by 200 and 500 basis points, respectively.
Central banks in Brazil, Mexico, South Africa, Thailand, Malaysia, and the Czech Republic did not hold meetings in October.
The overall rate hike tally for the year reached 4,225 basis points through 34 hikes, while central banks also executed 570 basis points of rate cuts across 11 adjustments. The diverging approaches between developed and emerging markets reflect the evolving economic conditions and the strategies central banks are employing to navigate the current global landscape.
