The European Central Bank is reflected on the Main River in Frankfurt, Germany, Sept 24, 2022. MICHAEL PROBST AP LONDON -- Major developed central banks delivered rate hikes at a pace and scale that is not seen in at least two decades, ramping up their fight against multi-decade high inflation with little let-up in sight.
The total amount of rate hikes in 2022 from the G 10 central banks increased by 550 basis points from the 10 most heavily traded currencies last month, bringing the total volume of rate hikes to 1,850 basis points from the G 10 central banks.
Vincent Chaigneau, head of research at Generali, said central banks are focused on killing the inflation beast.
The economic cycle is lagged by inflation. There is the risk that hysteresis forces in the inflation cycle keep central banks on a warpath for too long, causing policy overshooting. Growth fears over central banks ramping up rates too fast and potentially too far had seen markets gyrate in the third quarter and cast a pall over the month ahead.
The September central bank decisions did not help ease these fears, with the Federal Reserve hiking interest rates by 75 basis points for the third time in a row and Chair Jerome Powell vowing to keep at it while the Bank of England raised rates.
Both the European Central Bank and Canada lifted benchmark rates while policymakers in Switzerland ended a decade of negative interest rates in Europe with their rate hike in September, while Sweden's central bank delivered the biggest rate increase in four decades.
There are signs that some are looking to take the foot off the pedal. Norway predicted smaller hikes ahead after delivering a 50 bps rise on Sept 22, while Australia, having lifted rates to seven-year highs in early September, surprised markets with a smaller-than-expected move in October, the first bank out of the starting block in the fourth quarter.
More prominent signs of the rate hike cycle coming to an end were seen across emerging markets. Ten out of 18 central banks delivered 600 bps of rate hikes in September, well below the monthly tally of 800 plus basis points in June and July.
Hungary delivered a larger than expected 125 bps rise in September to end its tightening cycle in September, while uber-hiker Brazil took a breather in September. Since early 2021, both central banks have delivered around 1,200bps of hikes, a sign of the early hiking efforts undertaken by policymakers in both emerging Europe and Latin America, while Asia was still a bit earlier in the cycle.
In total, emerging market central banks have raised interest rates by a total of 6,340 bps year-to-date, more than double the 2,745 bps for the whole of 2021, according to calculations.
Emerging markets are way ahead of the central banks of many developed markets, including the Fed, the ECB and Bank of England, Claudia Calich, head of emerging markets debt at M&G Investments.
The rates perspective says that we are near the end of the tightening cycle. ALSO READ: NZ's central bank lifts rates to 7 year high in hawkish rush rush.