Global Monetary Easing Cycle

By Karin Strohecker and Sumanta Sen

LONDON (Reuters) – The global monetary easing cycle continued in October, with many central banks lowering interest rates in anticipation of the upcoming U.S. election.

Three of the four central banks overseeing the ten most widely traded currencies reduced benchmark rates during their October meetings. New Zealand and Canada each cut their rates by 50 basis points, while the European Central Bank decreased rates by 25 basis points.

Japan maintained its rates, and the U.S. Federal Reserve, along with central banks in Australia, Switzerland, Norway, and the UK, did not convene rate-setting meetings this month.

Market focus has shifted to the potential depth and duration of the rate-cutting cycle in developed markets, particularly as U.S. election outcomes are expected to influence monetary policy. The Fed is widely anticipated to reduce rates by 25 basis points soon.

Democrat contender Kamala Harris is expected to uphold the current economic growth and inflation trajectory in the U.S., while Republican candidate Donald Trump’s proposed trade tariffs could ignite a trade war, which may be inflationary and restrict rate cuts.

In emerging markets, out of 18 central banks surveyed by Reuters, six reduced rates in October. China, South Korea, Thailand, the Philippines, and Chile each cut by 25 basis points, and Colombia lowered by 50 basis points, while Russia raised rates by 200 basis points.

Emerging market central banks have been proactive, easing rates ahead of developed counterparts. Analysts noted that recent moves have positively impacted emerging market bonds this year. BlackRock's Jean Boivin indicated a potential pause in rate cuts may be forthcoming.

These latest rate adjustments brought total cuts in emerging markets since the start of the year to 1,710 basis points across 42 moves, surpassing last year’s total of 945 basis points. To date, 2024 has seen 1,300 basis points in hikes.