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The world's sharpest interest rate cut four times in half a year
Aug 8,2019
The content below was translated by Tencent automatically for reference.

SMM News: August 7, another three countries joined the global interest rate reduction army, India, New Zealand, Thailand, of which India has cut interest rates for the fourth time this year, now the global economy, does not seem to be embarrassed to cut interest rates.

Since the Fed began cutting interest rates in early August, the faucet seems to have failed to turn on. The Federal Reserve of New Zealand announced its decision on interest rates on the 7th, and the committee unanimously agreed to cut interest rates by 50 basis points, reducing the official cash rate (OCR) to 1 per cent. This is the second interest rate cut in New Zealand this year. The New Zealand dollar was widely expected to cut interest rates by 25 basis points after the New Zealand Fed's surprise move sent the New Zealand dollar tumbling. After the announcement, the New Zealand dollar plummeted more than 120 points against the US dollar, the lowest level since February 2016, at 0.6428.

Tafley (Nick Tuffley), chief economist at ASB Bank of New Zealand, said: "the New Zealand Fed's interest rate statement does not specify the next direction of interest rates, but has been emphasizing the need to guard against downward risks to the economy. Its OCR is expected to fall to around 0.9 per cent next year, which means there will be room for the New Zealand Fed to adopt a loose interest rate policy next year. "

New Zealand has just announced a cut in interest rates, and India is here. The central bank announced that it would cut its benchmark interest rate by 35 basis points to 5.40 per cent from 5.75 per cent, stronger than expected and the lowest level since 2010. This is the fourth time the Reserve Bank of India has cut interest rates this year. The Reserve Bank of India cut interest rates by 25 basis points in February, April and June.

The Reserve Bank of India said it maintained its "adaptive" monetary policy position and cut its GDP growth forecast for 2019-2020 to 6.9 per cent from 7.0 per cent. India's central bank this year implemented the most aggressive interest rate cut in Asia to push it down to its lowest growth rate in five years and stimulate investment.

"domestic economic activity remains weak at a time of downward risks posed by a global economic slowdown and escalating trade tensions," the central bank said in a statement. "addressing growth by increasing aggregate demand, especially private investment, is a top priority at this point."

The Bank of Thailand has also come to brush the screen. The Bank of Thailand announced that it would cut its benchmark interest rate to 1.50% from 1.75%, and the market expected interest rates to remain unchanged. The Bank of Thailand cut interest rates for the first time in four years to stimulate the economy and curb the rise in the Thai baht in response to a surge in global risk.

The Bank of Thailand has previously resisted interest rate cuts and expressed concern about consumer debt levels and the risks to financial stability. However, the intensification of global trade conflicts, the deterioration of drought and the appreciation of the Thai baht in recent months have led to a sharp deterioration in Thailand's economic outlook, affecting exports and tourism. The Thai baht has risen about 8 per cent against the dollar over the past year, making it the best-performing currency in Asia.

In addition to today's three central banks, more than a dozen major countries and regions have announced interest rate cuts this year.

More interest rate cuts are on the way

The European Central Bank interest rate resolution keeps the three major policy interest rates unchanged, but expresses the importance to the inflation target and implies an implicit interest rate cut. The ECB is widely expected to cut interest rates by 10 basis points to minus 0.5 per cent at its September meeting.

Shaun Roache, chief Asia-Pacific economist at S & P Global rating in Singapore, said central banks would cut interest rates defensively, so they would certainly see more rate cuts as external uncertainty over the trade situation prompted all central banks to consider easing.

The minutes of the BoJ meeting show that policymakers believe there is a need to discuss additional monetary easing.

Lee Chu-lie, governor of the Bank of Korea, said in a speech that he would consider responding to the adjustment in monetary policy and might consider cutting interest rates again if necessary. But he also said now is not the right time to talk about further rate cuts.

Although the RBA did not announce a rate cut this month, Macquarie expects the RBA to cut interest rates by 25 basis points in October and November, respectively.

The "bullet powder" of monetary policy has been exhausted

So far this year, the global economic outlook has been noticeably bleak, with a number of institutions, including the International Monetary Fund (IMF) and the World Bank, downgrading their forecasts for world economic growth in 2019. In this context, central banks around the world have begun a policy shift, hoping to boost economic growth by returning to easing, but that does not seem to be easy to imagine.

Global interest rates have been cut more than 700 times in the past decade, benchmark interest rates are now at historic lows and there is little conventional ammunition. Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development (OECD), warned at the previous G20 summit in Osaka that there were few tools left for central banks around the world to boost the economy. Today's global economy is like a car on a rugged mountain road, but there are no spare tires.

After four rate hikes in 2018, the Fed is in better shape than other major central banks. But its benchmark interest rate is still at an all-time low, only half of what it was before the financial crisis. The situation is even worse for the European Central Bank and the Bank of Japan. The ECB currently has a key lending rate of 0% and a deposit rate of-0.4%. The Bank of Japan's short-term interest rates have been negative since 2016.

Global negative interest rate bonds have reached a record $15 trillion.

"it is unrealistic to permanently use monetary policy to achieve higher sustainable growth." BIS general manager Agustine Carstens (Agustin Carstens) stressed. In addition, long-term low interest rates are dangerous for the stability of the global financial system. The low interest rate environment has paralyzed the sensitivity of markets to rising debt around the world. In a long-term loose monetary policy environment, the total global debt is accumulating. Government debt, corporate debt and household debt are rising around the world.

Photo Source: Sina Finance and Economics Comprehensive

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