The latest statistics in the industry show that the central banks of developed economies, led by the Federal Reserve, took the largest interest rate cut since the outbreak of COVID-19 in September.
Among the G10 central banks that held interest rate meetings in September, five of them lowered their benchmark interest rates that month - among them, the Federal Reserve launched its current easing cycle with a radical 50 basis point rate cut, while the Swedish Central Bank, Swiss National Bank, Bank of Canada, and European Central Bank cut interest rates by 25 basis points that month.
This is the largest easing action taken by G10 central banks in a single month since March 2020, when developed economies' central banks cumulatively cut interest rates by 615 basis points to support economies in widespread turmoil. Against the backdrop of many developed economies' central banks gradually entering the cycle of interest rate cuts, people have also begun to pay more attention to the depth and duration of the original interest rate cut cycle.
After the Federal Reserve cut interest rates by 50 basis points, the message they conveyed was very important - it showed that they were staying vigilant, they knew what was happening, they saw job growth slowing down, and they were not asleep, "Muzinich&Co; Tatjana Greil Castro, Global Co Head of Public Markets at Co., stated.
However, Castro believes that unless there is an external shock, this may be a shallow easing cycle, which means that US interest rates will eventually remain around 3-3.5%, while European Central Bank interest rates will be around 2-2.25%.
In fact, the dot plot of the Federal Reserve in September also shows that the median forecast of Fed officials is that long-term interest rates will be at the level of 2.9%, which may mean that the era of ultra-low interest rates is gone forever.
Federal Reserve Chairman Powell stated after the September interest rate meeting that the era of cheap funds will not return. Intuitively, most people would say that we may not go back to that era of ultra-low interest rates, when trillions of dollars in sovereign and long-term bonds were traded at negative rates. My personal feeling is that we will not go back to that state again, "Powell pointed out at the time.
In terms of emerging market central banks, the current situation is quite interesting.
Among the 18 relatively major developing economies' central banks surveyed by the media, 13 held interest rate meetings in September, with seven cutting interest rates, four staying put, and two raising interest rates.
Seven emerging central banks, including Indonesia, Mexico, South Africa, Czech Republic, Hungary, Chile, and Colombia, cut interest rates this month, with a total reduction of 200 basis points.
But two have also raised interest rates. In addition to the Russian central bank, which has been working hard to cope with the pressure on the ruble exchange rate, raising interest rates by 100 basis points, the move by the Brazilian central bank may be particularly noteworthy - as it was one of the first central banks to initiate a rate cutting cycle. But now its loose policies seem unsustainable, as the Brazilian central bank raised its benchmark lending rate by 25 basis points last month, marking its first interest rate hike in two years.
Obviously, although most emerging economies are currently in a loose cycle, the Federal Reserve's significant interest rate cuts will not give every economy the same room for maneuver.
Alexis Taffin de Tilques, head of debt capital markets for Central Europe, the Middle East, and Africa at BNP Paribas, said, "Central banks in emerging markets must protect their currencies and capital flows. The last thing they want to do is have capital outflows that put pressure on their currencies
However, overall, the pace of interest rate cuts in emerging economies this year is undoubtedly accelerating. Since the beginning of this year, the 18 emerging economies mentioned above have cumulatively cut interest rates 36 times, with a total easing rate of 1525 basis points, exceeding the 945 basis points for the whole of last year. So far in 2024, their combined interest rate hikes have been 1100 basis points.