Is This The Beginning Of A Global Rate Hike Cycle?

Brean Capital

Recent turmoil in emerging markets has caused several central banks - including the Reserve Bank of India, the Central Bank of the Republic of Turkey, and the South Africa Reserve Bank - to implement emergency rate hikes as their currencies tumbled.

The results of a new Banamex survey released yesterday showed that economists believe the Bank of Mexico's next move will be a 25 basis-points rate hike as well.

Russ Certo, head of rates at Brean Capital, passes along an interesting statistic: if you include Mexico, central banks in economies accounting for roughly 10% of global GDP are now hiking rates.

"Ironically, all these moves are designed to counter the consequence and capital flow results of previous central bank policy," says Certo.

"Remarkable, that all of these banks are tightening because of weak economic growth - not robust growth. World of opposites versus years ago, when tightening and easing was to stem the tide and ebb and flow of tanker-like shifts in economic activity. Now, they are to reduce or minimize the effects of imbalances related to previous central bank trends."

The moves have sparked a lot of chatter about the start of a global rate hike cycle, especially given monetary policy developments in larger economies - like the U.S., China, and the U.K. - which point to tightening on the horizon.