Central Banks Ease Off On Rate Hike Push In October

The pace and scale of rate hikes delivered by central banks around the globe in October slowed down dramatically following September's historic peak.

Central banks overseeing four of the 10 most heavily traded currencies delivered 200 basis points of rate hikes between them last month, while the remaining ones held rates. Policymakers at the European Central Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand and the Bank of Canada raised lending rates.

By comparison, eight of the same 10 central banks raised rates by a combined total of 550 bps in September, the fastest pace of tightening in at least two decades.

The latest moves have brought total rate hikes in 2022 from G10 central banks to 2,050 bps.

"The pace of central bank tightening has likely peaked," said Marko Kolanovic at JPMorgan in a note to clients.

"More dovish rhetoric from the ECB, BoC, Fed and RBA recently indicate the pace of central bank tightening is likely to slow in the coming months, though it is early to assess whether this means a lower terminal rate."

(G10 interest rates)

Markets had recently taken heart from indications that rate hikes from major central banks - especially the U.S. Federal Reserve - were slowing down.

However, any optimism on that front might be premature, said Jean Boivin, head of the BlackRock Investment Institute.

"We see central banks on a path to overtighten policy," said Boivin on Monday in a weekly outlook note from the world's largest asset manager.

"We think the Fed, like other developed market central banks, will only stop when the severe damage from rate hikes is clearer. Rates have already hit levels that may trigger recessions, in our view."

Policy makers and analysts have warned of a rising risk of recession, especially in Europe.

Data from emerging market central banks painted a similar picture. Five out of 18 central banks delivered 325 bps of rate hikes in October - less than half of September's tally and well below the monthly tally of 800-plus basis points in both June and July.

Indonesia, South Korea, Israel, Colombia and Chile all raised interest rates with the hiking cycle also nearing its end though there are some differences in near-term trajectories. While policy makers in Chile indicated that no more rate hikes were in the offing for now, Israel's central bank said it saw rates rising to levels above current levels.

Meanwhile outlier Turkey, where President Tayyip Erdogan is pushing for lower interest rates, delivered a bigger-than-expected 150 bps benchmark cut despite inflation at above 80%.

"The extent of the cost-of-living pressures are highly de-synchronised across the EM complex, with clear winners and losers," said Ehsan Khoman at MUFG.

In total, emerging market central banks have raised interest rates by a total 6,765 bps year-to-date, more than double the 2,745 bps for the whole of 2021, calculations show.

(Emerging markets interest rates)