• China
  • Economic Growth
  • Global Economy
  • Report
  • Eurozone Crisis
  • USA
October 03, 2019

Global Economy: Easy money redux

  • The United States (US) Federal Reserve cut its policy rate by 25 basis points (bps), for the second time in a row, in its September policy meeting, after it ended its rate hike cycle by undertaking a similar cut in July
  • The European Central Bank (ECB) cut the interest rate on the deposit facility by 10 bps to -0.50% and reintroduced quantitative easing, slated to start from November 1
  • The People’s Bank of China (PBoC) cut its reserve requirement ratio by 0.5 percentage points, a move expected to free about 900 billion renminbi (approximately $126 billion) into the financial system

In an effort to treat the slowdown, which is again afflicting the global economy, central banks are reaching for their stimulus injection. During its monetary policy meet on September 17-18, the US Fed slashed its policy rates by 25 bps, bringing the Federal Funds rate to 1.75-2.00%, from 2.00-2.25%. This is the second such move after the Fed had cut rates – for the first time in over a decade and ending a three-and-a-half-year long rate hike cycle - by 25 bps in July.


Likewise, in its latest monetary policy meet, the ECB lowered its policy rate (deposit facility) by 10 bps to a record low of -0.5%. It also announced restarting its quantitative easing programme, the asset purchase programme at a monthly pace of €20 billion, which will start from November 1.


The Bank of Japan is also expected to ease its policy rate further into the negative territory to assuage the impact of the slowdown and the likely negative impact on consumption demand from the consumption tax hike scheduled to come into force from October.


All this means, monetary conditions globally are expected to ease in the near term. In such a scenario, emerging markets with healthy macros can see increased capital inflows.