Bumper Fed rate cut supercharges central banks' easing cycle in September

Reuters

Published Oct 03, 2024 04:38AM ET

Bumper Fed rate cut supercharges central banks' easing cycle in September

By Karin Strohecker and Sumanta Sen

LONDON (Reuters) - Led by the U.S. Federal Reserve, developed market central banks in September delivered their biggest interest rate cut push since the easing wave at the onset of the COVID-19 pandemic, while Brazil kicked off a fresh tightening cycle.

Five of the nine central banks overseeing the 10 most heavily traded currencies that held meetings in September lowered benchmarks. The Fed delivered a bumper 50 basis point (bps) rate cut to kickstart its easing cycle while Sweden, Switzerland, Canada and the euro area shaved off 25 bps.

That was the biggest easing effort by this group of developed central banks since they cut a cumulative 615 bps in March 2020 to shore up economies engulfed in pandemic turmoil. Attention has now moved on to how deep and how long the rate cutting cycle across developed markets could be.

"After the Fed cut by 50 basis points, what they communicated was important - saying we are on alert, we know what's going on, we see employment growth slowing and we're not asleep at the wheel," said Tatjana Greil Castro, global co-head of public markets at Muzinich & Co.

"Unless there's an external shock, this is likely to be a shallower cycle, meaning the U.S. ends with rates at around 3-3.5% and Europe and at around 2-2.25%."

The picture was more mixed across emerging markets, and the bumper Fed cut would not give everyone the same room for manoeuvre.

"Central banks in emerging markets will have to protect currencies and fund flows," said Alexis Taffin de Tilques, head of debt capital markets CEEMEA at BNP Paribas (OTC:BNPQY). "The last thing they want to do is to have outflows and put their currencies under pressure."

Thirteen of the Reuters sample of 18 central banks in developing economies held rate-setting meetings in September.

Two of those delivered hikes.

Brazil lifted its benchmark lending rate by 25 bps, its first hike in two years. Like many of its Latin American peers, Brazil had front-run the Fed in easing.

And Russia, which has been grappling with a pressured rouble, raised rates by 100 bps.

Meanwhile seven emerging central banks delivered interest rate cuts - Indonesia, Mexico, South Africa, Czech Republic, Hungary, Chile and Colombia, lowering rates between them by 200 bps. The remaining four left rates unchanged.

© Reuters. FILE PHOTO: A trader works on the trading floor at The New York Stock Exchange (NYSE), in New York City, U.S., September 18, 2024. REUTERS/Andrew Kelly/File Photo
Get The News You Want
Read market moving news with a personalized feed of stocks you care about.
Get The App

The latest moves in emerging markets took the tally of cuts since the start of the year to 1,525 bps across 36 moves - outstripping last year's total of 945 bps of easing.

Total hikes so far in 2024 stood at 1,100 bps.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes