Global rate hike cycle peters out in November, EM cuts outstrip hikes

LONDON : The global monetary tightening cycle was in its last throes in November, with major developed central banks delivering just one increase and the number of cuts outstripping hikes for the first time in 33 months across emerging markets.

November saw six of the central banks overseeing the 10 most heavily traded currencies hold rate setting meetings, with only the Reserve Bank of Australia hiking rates by 25 bps.

Policy makers in the United States, New Zealand, Sweden, Norway and Britain opted to keep benchmarks unchanged at their gatherings.

This compares to October where five of the major developed central banks met without delivering a single rate hike. The year-to-date rally stands at +1,175 bps across 37 hikes, Reuters calculations showed.

While there is no doubt that the rate hike cycle is petering out for major central banks as inflation slowly ebbs and growth concerns mount, markets and policy makers seem at odds at what will happen next.

Traders have raised bets that big central banks such as the Fed and the ECB will cut rates in the first half of next year.

Others were more sceptical.

“Sure, inflation is falling in the near term as pandemic-era mismatches unwind, with consumer spending shifting back to services from goods,” said Jean Boivin at BlackRock Investment Institute in a note to clients this week.

However, with inflation set to stay well above 2 per cent central bank policy targets on the back of big structural shifts such as a slowing labour force growth, geopolitical fragmentation and the low-carbon transition, the banks may not pivot as soon as some optimists hope.

“That’s why we see central banks keeping interest rates high for longer,” Boivin added.

Meanwhile, in emerging economies the number of rate cuts outstripped rate hikes in November for the first time since February 2021 across the Reuters sample of 18 central banks in developing economies, of which 14 held rate setting meetings last months.

“Emerging market central banks were very proactive during the course of the last two, three years, and very aggressive rate hike behaviour,” said Robert Simpson, portfolio manager at Pictet Asset Management.

“They’ve actually been able to commence a cutting cycle well ahead of the Fed and the fact that we’re now taking out any fear of increased rate hikes, but also start to price cuts actually creates more room for EM central banks to continue their rate cutting cycle back to more normal levels, and we see that continue into next year.”

Both Brazil and Hungary extended their rate easing cycle, lowering benchmarks by 50 bps and 75 bps respectively and confirming that Latin America and central Europe remain at the forefront of the easing cycle. The latest moves take the total annual tally of rate cut to 695 bps through 13 moves.

Only Turkey – which is still combating persistently high inflation and a weakening currency – delivered a rate hike of 500 bps.

In total since the start of the year, emerging market central banks have tightened by 4,725 bps – which compares to rate hikes to the tune of 7,425 bps in the full year of 2022.