Central banks hiked, cut and held in the same week — sometimes all three

The hikes

The Central Reserve Bank of Peru raised its benchmark interest rate to 4.50% from 4.25%, according to BBVA Research, citing supply shocks and rising inflation expectations. Year-on-year inflation increased from 4.5% in September to 5.3% in October, and core inflation rose from 4.5% to 4.6% over the same period. Twelve-month inflation expectations are at 3.1%, slightly above the upper limit of the bank's target range. m:…0737

Peru was not alone. The Reserve Bank of India raised its policy rate by 25 basis points to 5.50%, and the Philippines central bank raised its policy rate by 50 basis points to 5.50%, according to State Street's emerging market debt commentary. The Bank of Serbia raised interest rates by 25 basis points to 6.00%, according to Erste Bank's daily note. m:…0443 m:…4132

The hikes were in line with market expectations in Peru's case, BBVA notes, and the bank does not anticipate a cycle of successive hikes, though further adjustments are not ruled out. Inflation is expected to increase in the first two months of next year due to the El Niño phenomenon. m:…0737

The cuts and the holds

Elsewhere, the direction was the opposite. Turkey's central bank announced a 100 basis point cut to 36%, according to State Street, while the People's Bank of China kept its key lending rates unchanged for the 17th consecutive month. The Bank of Romania kept interest rates at 6.50%, Erste Bank notes, and Wiesław Janczyk states interest rates may be held in December. m:…0443 m:…4132

The split shows up in bond returns too. The 10-year US Treasury yield fell 36 basis points to 4.93% in October, State Street reports, and the JP Morgan EMBI Global Diversified Index returned 1.35% in the month while the JP Morgan GBI-EM Global Diversified Index returned -0.72%. Hard currency bonds recorded net outflows of $1.9 billion in October. Brent crude oil prices rose above $117 per barrel in October, and attacks on commercial shipping in the Strait of Hormuz reached their highest level since the US-Iran conflict began. m:…0443

The ECB's bigger question

The European Central Bank faces a different kind of question. ECB President Christine Lagarde plans to step down in February 2027, according to Northern Trust, and the bank currently sets monetary policy for 21 member states. The euro area has been hit by two energy shocks in the last four years, member states are running large budget deficits, and fiscal stress in France has led to suggestions that the ECB use emergency bond-buying programs. m:…6964

Northern Trust's assessment is blunt: the ECB has struggled to achieve its inflation target, its balance sheet is currently larger than it would like, and progress in implementing the Draghi Report has been slow. Europe may also lag in achieving productivity gains from artificial intelligence. The ECB's charter makes it very difficult for a member to depart, and its Governing Council does not announce the outcomes of monetary policy votes, two features that make an already difficult consensus harder to read from the outside. m:…6964

The pattern of the week is divergence, not coordination. Some central banks are still tightening against supply shocks, some are cutting, and some are holding, and the largest central bank in Europe is about to change leaders while managing policy for 21 countries. For anyone moving money across borders, the assumption that rates move together no longer holds. m:…0737 m:…0443 m:…6964