The expected turn in the monetary policy of the United States Federal Reserve (Fed) arrived in December, the main developed central banks applied only one increase in interest rates and the number of cuts accelerated further in emerging markets.
In December, eight of the central banks that oversee the 10 most traded currencies held meetings to set rates, and only Norway He raised them 25 basis points.
In the last month of the year, the European Central Bank (ECB) and the monetary authorities of England, Japan, Australia, Canada and Swiss They chose to keep the reference rates unchanged at their meetings, as did the Fed from the United States. But the striking dovish turn from the world’s top central bank caught markets by surprise and raised bets that interest rates would fall faster and sooner than expected.
Expectation vs reality
European and other policymakers did not echo those expectations, and markets appear to disagree with them on the timing.
“The deceleration of the world economy, the relaxation of inflationary pressures and the cooling of the labor markets would open the door to rate cuts by major central banks next year,” he said Dean Turnerchief economist for the Euro zone and United Kingdom from USB Global Wealth Management: He added that keeping rates at current levels would tighten conditions in real terms. “Few, if any, central bankers believe this will be necessary, so it is more than likely that rates will be lowered in 2024.”
So far this year, the central banks of the G-10 They have raised interest rates by 1,200 basis points in 38 increases, less than half of the 2,700 basis points they rose in 2022, when 54 increases were recorded, according to Reuters calculations.
Meanwhile, in the emerging economieswhich have been at the forefront of both the tightening and easing cycles, rate cuts gained steam.
Five of the 18 developing economy central banks in the Reuters sample cut rates, the most in at least three years. Those responsible for the monetary Czech Republic began their relaxation cycle, while Brazil, Hungary, Colombia and Chili They redoubled their relaxation efforts. In the Reuters sample of markets, 13 central banks held rate-setting meetings in December.
The latest measures bring the annual total of rate cuts to 945 basis points over 18 meetings, compared to 1,765 basis points of cuts in 2022 over 11 meetings. According to analysts, there is still much to do.
“The moderate turn of the Fed has boosted risk sentiment in emerging markets and offers central banks in these markets more room for easing,” said Christian Keller, head of economic research at Barclays.
However, both Russia as Türkiyewhich face continued pressure on their currencies and stubbornly high inflation, remained in rising mode, with a 350 basis point tightening between the two.
In total, since the beginning of the year, emerging market central banks have increased their rates by 5,075 basis points, compared to increases of 7,425 basis points in all of 2022.
Source: Ambito
