Global central banks pause rate hikes as inflation risks keep tightening outlook alive

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Central banks pause rate hikes

Highlights

Canada is the only G10 central bank to raise rates in October, while the Fed, ECB, Japan, and others keep rates unchanged.
G10 central banks have delivered 350 basis points of tightening through 14 hikes in 2023, with no rate cuts, amid persistent inflation risks.
Brent crude futures posted double-digit percentage gains in September and October, raising inflation pressures and reinforcing expectations for prolonged restrictive monetary policy.

October rate decisions across major economies

As reported by Reuters, Canada's central bank is the only one among those overseeing the 10 most heavily traded currencies to raise interest rates in October. The U.S. Federal Reserve, the European Central Bank, New Zealand and Japan keep rates unchanged, while central banks in Switzerland, Australia, Sweden, Norway and Britain do not hold rate-setting meetings.

Across the G10, central banks deliver 350 basis points of tightening through 14 rate hikes this year, with no rate cuts. BNP Paribas economist Anis Bensaidani says the Fed, the ECB and the Bank of Japan all leave rates unchanged, but adds that the pause does not mark the end of the cycle.

The slowdown in October follows a busier September, when six G10 central banks deliver a combined 150 basis points of hikes, the largest monthly tightening move since June 2023.

Oil prices and emerging markets shape the next phase

Central banks are pausing against a backdrop of rising energy prices, with Brent crude futures posting double-digit percentage gains in both September and October. That trend raises the risk of renewed inflation pressure and supports expectations that policy settings may need to stay restrictive for longer.

Ryan Sweet, chief global economist at Oxford Economics, says monetary policy is tight but likely not tight enough yet. He says the path of future tightening depends largely on inflation, while uncertainty remains over how restrictive current policy is and how much more is needed to bring inflation back to target.

The relative lull is also visible in developing economies. In a Reuters sample of 18 emerging market central banks, only the Philippines and India raise rates in October, by a combined 75 basis points, while 10 others that hold meetings leave benchmark rates unchanged. Turkey resumes its easing cycle after an eight-month break, cutting rates by 100 basis points.

So far this year, central banks in that emerging market group deliver a combined 675 basis points of tightening through 16 hikes, alongside 850 basis points of easing through 25 cuts.

Our earlier article on UBS Global Wealth Management’s extended Fed tightening-cycle forecast explained why the bank expects additional U.S. rate hikes beyond the latest move, citing stubborn inflation and overlapping supply-demand risks. It also noted that market pricing shifted toward “higher for longer” expectations, reinforcing the idea that borrowing costs could stay elevated even as other central banks pause.

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