In March, Switzerland initiated a significant shift in monetary policy by becoming the first among major central banks to embark on a cycle of rate cuts. This decision diverged sharply from the actions of other G10 nations, underscoring a distinct policy stance amidst a complex global economic landscape.
While the Swiss National Bank opted to lower its key lending rate, it contrasted markedly with the situation in Japan, where policymakers veered away from their longstanding negative interest rates regime. Japan’s move to raise its key benchmark rate for the first time in 17 years presented a notable departure from its previous policy trajectory.
Among the remaining G10 central banks convening in March, including prominent entities like the U.S. Federal Reserve, the European Central Bank, and others, there was a consensus to maintain existing benchmark lending rates. This cohesion in policy stance across the G10 was further exemplified by the absence of a rate-setting meeting in New Zealand during the period.
Guy Miller, chief market strategist at Zurich Insurance Group, emphasized the significance of Switzerland’s rate cut, interpreting it as concrete evidence of central banks transitioning from mere deliberation to decisive action in response to prevailing economic conditions.
Market indicators, such as data from LSEG, suggest a prevailing expectation in money markets that the European Central Bank and the Federal Reserve will commence rate-cutting measures come June, reflecting anticipation of future monetary policy shifts.
Turning to emerging economies, where dynamics often precede those in developed markets, the trend of easing gained momentum. Five of the 18 central banks within the Reuters sample of developing economies opted for interest rate reductions in March, mirroring the heightened activity witnessed in December, which marked the highest number of rate cuts observed in at least three years.
Mexico initiated its anticipated easing cycle as expected, while Brazil, the Czech Republic, Hungary, and Colombia intensified their efforts to stimulate their respective economies through further monetary accommodation.
Turkey emerged as a notable outlier, shocking markets with an unexpected 500 basis point rate hike. This decision was underscored by concerns over a deteriorating inflation outlook, with Turkish policymakers pledging additional tightening measures if inflationary pressures were to escalate significantly.
Across the emerging markets surveyed by Reuters, a total of 12 central banks convened rate-setting meetings in March. Year-to-date data reveals a notable contrast in policy directions, with Turkey accounting for the entirety of the 750 basis points in rate hikes observed, while a cumulative 675 basis points in cuts were distributed across other emerging markets.