What US Fed does today, world central banks need not do tomorrow

The trend of central banks following their American counterpart's lead is not always certain

Do central banks still continue to follow the Federal Reserve’s (Fed) actions? The issue becomes critical ahead of the US central bank's meeting in September amid speculation of a rate cut. A study by SBI Research in India has it that central banks in rate-hike cycles are synchronised across countries but not during rate cut cycles.

Historical data shows that the Fed rate cut cycle during the global financial crisis led central banks in emerging markets to follow suit but the timing has been different. While some countries like Brazil had started cutting the rates prior to the Fed, India, Malaysia, South Africa and other did so several months later.

However, when we look at the latest Fed hike cycle in 2022 to 2023 most countries started increasing rates almost at the same time (except Brazil). Thus, the move of the central banks in the rate hike cycles are synchronised across countries but during the rate cut cycles they become unsynchronised. This is what is happening currently when many central banks, including those of China, Chile, Brazil and Mexico among the developing countries, and the United Kingdom, Canada and European Central Bank among the developed world have already cut the rates while the United States is likely to cut its rate in September.