In order to stimulate growth, the world's central banks are reducing their interest rates

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Central Bank of Malaysia (CMA)

Central banks in Asia and South Africa have recently cut interest rates, joining a global trend that began earlier this year in the Asia-Pacific region and is expected to be followed soon by the United States. Europe in a few weeks.
The recent decision taken by the central banks of South Korea, Indonesia and South Africa reflects the global nature of the interest rate cuts as a policy recommendation to examine the best way avoid the specter of low economic growth.
Given the interdependence of global economies and financial markets, the trend of the Fed and the ECB to lower interest rates has encouraged emerging market central banks to accelerate this process in order to stimulate the growth. Since April, New Zealand, India, Malaysia and the Philippines have lowered their interest rates. China's central bank has also taken a series of measures to expand lending to small businesses. Investors expect the central bank to lower interest rates as soon as the Fed decides to do the same.
A few days ago, the South Korean central bank decided to reduce interest rates for the first time in three years in order to overcome the decline in economic growth of the nearest road. The benchmark rate was 1.5% after a quarter of a percentage point reduction.
Economic badysts were stunned by the timing of this decision: the Wall Street Journal surveyed 19 leading badysts, 12 of whom believed that South Korea would not reduce interest rates until the end of the month. August if it were to be implemented within a month. The bank hinted at further cuts, dampening the outlook for economic growth and inflation this year.
"The interest rate cuts suggest that they are not a kind of insurance, but a reactionary policy to deal with negative macroeconomic surprises," say badysts at Societe Generale. They expected further reductions in the fourth quarter of this year and in the first quarter of next year, bringing the maximum interest rate to 1% in South Korea.
The Central Bank of Indonesia has reduced its benchmark interest rate by a quarter of a point to 5.75%, a first such decision since September 2017. This decision was slightly different from that local economic badysts. Analysts at Commerzbank (Germany) expect a sequential reduction of 0.75% by the end of the year. For South Africa, the benchmark interest rate was 6.5% vs. 6.75% before the last decision. The decisions of the central banks of the three countries indicated that they had been taken to mainly address the weakness of economic growth. While others make similar decisions to ensure their economic expansion.
South Korea's GDP declined in the first quarter of the year. Indonesia's GDP has declined twice since the beginning of the year. In South Africa, the index fell 3.2% from one year to the next in the first quarter. Nevertheless, it should be noted that the three banks raised their interest rates at the end of last year, which gave them a lot of room for maneuver when necessary.
Similarly, the US Federal Reserve raised its key interest rates at the end of last year between 2.25% and 2.5%. Earlier this year, he hinted that interest rates could rise again. But signs of sluggish US economic growth, accompanied by a sharp drop in inflation, prompted US government officials to hint at a reduction in interest rates in the United States. 39, here the end of the month.
In contrast, the ECB is an isolated case, unable to move away from positive interest rates. Since 2016, the prevailing interest rate has been minus 4%. Despite this, European badysts expect further cuts before the end of the summer season.

By: Brian Blackstone