First major central bank rate cut marks turning of cycle

London — Switzerland kick-started the rate cutting cycle among major central banks in March while the easing push re-accelerated across emerging economies.

The Swiss National Bank became the first central bank overseeing one of the 10 most heavily traded currencies in the world to lower its key lending rate since November 2020. The move stood in sharp contrast to Japan, where policymakers ended eight years of negative interest rates and lifted their benchmark for the first time in 17 years.

The other seven G10 central banks holding meetings last month — the US Federal Reserve, the European Central Bank as well as central banks in Canada, Australia, Sweden, Norway and the UK — kept benchmark lending rates unchanged. New Zealand had no rate setting meeting scheduled.

“We’ve got a rate cut now in the G10, with the Swiss National Bank being the first out the gate,” said Guy Miller, chief market strategist at Zurich Insurance Group. “So, we have got some evidence now to say that the central banks are acting as opposed to just talking — policy has indeed pivoted.”

Money markets show traders see a high chance that the ECB and Fed will start cutting rates in June, according to LSEG data.

In emerging economies — which have been ahead of developed market central banks in both the recent tightening and the easing cycle — the pace of rate cuts speeded up again.

Five of the Reuters sample of 18 central banks in developing economies cut interest rates in March, matching the December tally which was the highest number in at least three years.

Policymakers in Mexico embarked on their easing cycle as expected, while Brazil, the Czech Republic, Hungary and Colombia doubled down on their easing efforts. But it was outlier Turkey which stunned markets with an unexpected 500 basis point rate hike, citing a deteriorating inflation outlook and pledging to tighten even further if price pressures were to worsen significantly.

Across the Reuters emerging markets sample, 12 central banks held rate setting meetings in March. The year-to-date tally of rate hikes across emerging markets stood at 750 basis points — all of which were delivered by Turkey. This compares to 675 basis points of cuts.

Reuters