Global Central Bank Dashboard: More Cuts Now Than Hikes

According to Bank for International Settlements statistics, there's now clear evidence that more global cuts are coming through than hikes, which is the first time that's been the case since January 2021.

At the moment, the number of hikes is a fraction of where they were at their peak in summer 2022. Cuts have slowly been building up, but the general theme has been a much lower level of global central bank activity.

As early as March 17, 2021, Brazilian Central Bank Governor Roberto Campos Neto conveyed a completely different message from his US counterparts. The bank carried out the largest interest rate increase in ten years to curb an inflationary spiral that he believed was brewing.

However, with inflation below the government's 3.25% target and Brazil and wider Latin America leading the world economic downturn, the Brazilian central bank began cutting interest rates in August.

Brazil's Santander Bank managing director, Sandro Sobral, said he has worked closely with the Governor of Brazilian Campos Neto for 10 years. He gradually realized that Campos Neto, like countless Brazilians, had become disgusted with rising prices after experiencing 3,000% inflation in the 1990s. "This is why the central bank raises interest rates quickly and by the largest margins."

Following Brazil, Chile, and Poland's policy shift to cuts in the third quarter, Hungary, Indonesia, and South Korea also began cutting interest rates for the first time in October.

North America and Europe still seem to be in the "higher for longer" narrative now. Jim Reid, the head of Global Economics and Thematic Research of Deutsche Bank, noted in his latest report that unless the US sees a recession, it will be tough to see a big imminent global easing cycle. However, if a recession comes, we will likely see a huge flip in the first graph and more cuts.

Jim also noted that, at the moment, cuts are priced in on a soft-landing scenario. He is more inclined to think it might be right for the wrong reasons, and he expects more cuts due to a harder landing.

The market has failed six previous bets on the Federal Reserve's monetary policy shift to easing.

Treasury yields plunged recently in response to weak economic numbers that ruled out any more rate hikes from the Federal Reserve, and accelerated the central bank's move towards lower rates.

“The rise in unemployment and the fall in inflation is putting us closer to a position where the Fed have begun to cut rates in previous cycles.” Deutsche Bank analyst said, “it's possible that this time could be different.”