Global central banks diverge: G10 maintains rates, emerging markets see varied policy approaches

In October, central banks in the G10 group of major developed economies maintained their interest rates, marking a pause in rate hikes after a series of increases earlier in the year. Meanwhile, emerging markets displayed a divergence in their monetary policies, with some regions in Latin America and central Europe continuing to ease, while Asian economies opted for tightening measures.

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

This shift in central bank actions follows a period in 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 year-to-date.

Despite persistently high inflation levels relative to central banks’ targets, a recent surge in global bond yields, especially at the longer end of the yield curve in both developed and emerging markets, has altered the economic landscape. Analysts suggest that these higher yields may contribute to the tightening of monetary conditions, potentially leading central banks like the U.S. Federal Reserve, the Bank of England, and the European Central Bank to take a more cautious approach and assess the impact of previous rate hikes on their respective economies.

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Fabiana Fedeli, chief investment officer at M&G Investments, noted that the U.S. Federal Reserve is likely nearing the end of its current rate hike cycle.

In emerging economies, there continues to be a divergence in rate trajectories. Out of the 18 central banks sampled by Reuters, 12 held meetings in October. In Latin America and central and eastern Europe, countries like Chile, Hungary, and Poland extended their rate-cutting cycles, collectively lowering their benchmark rates by 150 basis points (bps). This return to rate cuts is attributed to concerns that the previous hiking cycle may have been too swift and aggressive for some economies.

Meanwhile, Asian central banks are still in a tightening phase, with Indonesia and the Philippines raising their rates by 25 bps each. In Russia and Turkey, pressures on their currencies due to unique domestic factors led to significant rate hikes of 200 bps and 500 bps, respectively.

Several central banks in Brazil, Mexico, South Africa, Thailand, Malaysia, and the Czech Republic did not convene rate-setting meetings in October. For the year, the total number of rate hikes reached 4,225 bps through 34 hikes, while central banks also implemented 570 bps of rate cuts across 11 moves.