Finance Linked News on October 3 (Editor Xiaoxiang): The latest industry statistics show that led by the Federal Reserve, central banks of developed economies implemented the largest interest rate cut measures since the beginning of the COVID-19 outbreak in September.

Among the G10 central banks that held interest rate meetings in September, five lowered their benchmark interest rates - among them, the Federal Reserve initiated its current easing cycle with a bold 50 basis point rate cut, while the central banks of Sweden, Switzerland, Canada, and Europe each lowered rates by 25 basis points that month.

This is the most aggressive easing action taken by G10 central banks in a single month since the cumulative 615 basis point rate cuts by central banks of developed economies in March 2020 to support the economy in widespread turmoil. With many central banks of developed economies already entering rate cut cycles, attention is now increasingly focused on the depth and duration of the current rate cut cycle.

"After the Federal Reserve's 50 basis point rate cut, the message they conveyed is very important - it shows that they are staying vigilant, they know what's happening, they see the slowdown in job growth, they are not asleep," said Tatjana Greil Castro, Global Co-Head of Public Markets at Muzinich & Co.

However, Castro believes that unless there are external shocks, this may be a relatively shallow easing cycle, which means that US rates will eventually remain around 3-3.5%, while European Central Bank rates will be around 2-2.25%.

In fact, the Federal Reserve's September dot plot also indicates that Fed officials' median forecast suggests long-term rates will be at the 2.9% level, which may imply that the era of ultra-low rates is gone for good.

Federal Reserve Chairman Powell said after the September interest rate meeting that the era of cheap funding will not return. "By intuition, most people would say we may not go back to that (ultra-low interest rate) era, where tens of trillions of dollars worth of sovereign bonds and long-term bonds traded at negative rates. My personal feeling is that we will not return to that state," Powell pointed out at the time.

On the other hand, the current situation in emerging market central banks is quite interesting.

Among the 18 relatively major central banks of developing economies as per media statistics, 13 held interest rate meetings in September. Seven cut rates, four remained unchanged, and two raised rates.

Seven emerging market central banks including Indonesia, Mexico, South Africa, Czech Republic, Hungary, Chile, and Colombia cut rates that month, with a total rate cut of 200 basis points.

However, two central banks raised rates. Apart from the Russian central bank, which has been working to address pressure on the ruble exchange rates and raised rates by 100 basis points, the move by the Brazilian central bank may attract particular attention - as one of the central banks that initially started the rate cutting cycle, its loose policy now seems unsustainable. The Brazilian central bank raised the benchmark lending rate by 25 basis points last month, marking its first rate hike in two years.

Clearly, even though most emerging economies are currently in an easing cycle, the significant rate cuts by the Federal Reserve will not provide the same leeway for every economy.

Alexis Taffin de Tilques, Debt Capital Markets Head for Central Europe, the Middle East, and Africa at BNP Paribas, said, "Emerging market central banks must protect their national currency and capital flows. The last thing they want is capital outflows that put pressure on their national currency."

Overall, the pace of rate cuts in emerging economies this year is undoubtedly accelerating. Since the beginning of this year, the aforementioned 18 emerging economies have collectively cut rates 36 times, totaling an easing of 1525 basis points, exceeding last year's total of 945 basis points. As of 2024, the cumulative rate hikes have totaled 1100 basis points.

Editor/ping