“Without a doubt, central banks are focused on killing the beast of inflation,” Vincent Chaigneau, head of research at Generali, said in a quarterly outlook.
“But inflation lags behind the business cycle. The risk is that the hysteresis forces of the inflation cycle keep central banks on the warpath for too long, causing monetary policy tightening to overshoot.”
Fears that major central banks are raising interest rates too quickly and potentially by too much has sent markets reeling in the third quarter and cast a shadow over this month.
Central bank decisions in September did little to allay these fears: the Federal Reserve raised interest rates by 75 basis points for the third time in a row and its chairman, Jerome Powell, promised to “keep it up”, while the Bank of England He also raised his rates.
As he European Central Bank as Canada benchmark interest rates rose, while Swiss policymakers ended a decade of negative interest rates in Europe with their September hike, while Sweden’s central bank made the biggest hike ever rates in four decades.
However, there are signs that some want to take their foot off the accelerator. Norway forecast smaller hikes after posting a 50 basis point hike on September 22, while Australia, having raised rates to seven-year highs in early September, surprised markets with a smaller-than-expected move in October. .
In the emerging markets, the signs that the cycle of rate hikes is coming to an end were more prominent. Ten of the 18 central banks raised interest rates by 600 basis points as a whole in September, well below the monthly figure of more than 800 basis points in June and July.
Hungary rose 125 basis points more than expected to end its tightening cycle in September, while Brazil took a breather in September.
Both central banks have hiked by around 1,200 basis points each since the beginning of 2021, emblematic of early hiking efforts by policymakers in both emerging Europe and Latin America, while in Asia the cycle is still somewhat earlier.
Total, Emerging market central banks have raised interest rates by a total of 6,340 basis points so far this year, more than double the 2,745 basis points for all of 2021, according to calculations.
“Emerging markets are way ahead of the central banks of many developed markets, such as the Fed, the ECB and the Bank of England,” says Claudia Calich, head of emerging markets debt at M&G Investments.
“From a rates standpoint, we are approaching the end of the tightening cycle.”
Source: Ambito
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