Global Interest Rates Effectively Peak... Timing of Decline Unpredictable

Eurozone, Canada, and Other Major Countries Hold Interest Rates Steady
High-Intensity Tightening Slows Inflation and Cools Economy
Uncertainty Remains Due to Israel War and Inflation Concerns
Too Early to Predict Interest Rate Cuts
Powell Dismisses Discussion Saying "Not Discussed"

Following Europe, the U.S. central bank has also kept its benchmark interest rate unchanged, leading to assessments that the monetary tightening cycle among major countries worldwide, which has lasted for over a year, is effectively entering its final phase. However, due to uncertainties such as the Israel war and concerns over a rebound in inflation, it is difficult to predict the timing of interest rate cuts.

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The U.S. Federal Reserve (Fed) held its Federal Open Market Committee (FOMC) regular meeting on the 1st (local time) and decided to keep the benchmark interest rate (5.25?5.50%) unchanged. This marks the second consecutive hold following the rate freeze in September this year. The market is highly anticipating that there will be no additional hikes at the December FOMC meeting as well.

Prior to the Fed, the central banks of the Eurozone, Canada, and Australia also froze their benchmark interest rates last month. The European Central Bank (ECB) held its benchmark rate steady at 4.50% on the 26th of last month. This was the first hold since it began raising rates in July last year, thus putting an end to 15 months of tightening. The central banks of Canada and Australia also maintained their benchmark rates at 5.0% and 4.1%, respectively, last month. The Bank of England (BOE), the central bank of the UK, is scheduled to hold a monetary policy meeting on the 2nd, and it is highly likely that it will also keep the benchmark rate at the current 5.25%. South Korea has also kept its benchmark interest rate unchanged for six consecutive times from February this year through last month.

As the cumulative effects of monetary tightening rapidly cool the global economy, major countries are preparing to end the year-to-year and a half-long streak of rate hikes. Due to the unprecedented speed and intensity of tightening by monetary authorities worldwide, benchmark interest rates in major countries have already surpassed inflation rates. In the U.S., the consumer price index (CPI) in September rose 3.7% compared to a year ago, falling below the benchmark rate of 5.5%. The Eurozone’s CPI inflation rate, announced for October, also recorded 2.9%, below the benchmark rate of 4.5%. Canada, which held its benchmark rate steady at 5.0% for two consecutive times last month, saw a September CPI inflation rate of 3.8%, lower than its benchmark rate. According to SMBC Nikko Securities, the global average benchmark interest rate stood at 7.4% at the end of last month, surpassing the global inflation rate of 5.9%. Inflation in major countries remains above the central banks’ target of 2%. However, by keeping interest rates higher than inflation, the economy appears to be gradually cooling down.

However, monetary authorities in each country are not signaling that the tightening cycle has ended. Uncertainties remain, such as the possibility that rising international oil prices due to the war between Israel and the Palestinian militant group Hamas could reignite inflation. In the U.S., a robust labor market, strong consumption, and surprising economic growth continue to keep the economy hot. Accordingly, some analysts say it is premature to predict the timing of interest rate cuts. Depending on the situation, the possibility of further rate hikes remains open.

Christine Lagarde, President of the ECB, after holding rates steady last month, stated, "The Eurozone economy is fragile, but inflationary pressures remain strong. If energy prices surge due to the Middle East war, inflation could worsen further," adding, "It is too early to discuss the direction of interest rates or rate cuts."

This content was produced with the assistance of AI translation services.