It’s just a race to the bottom – there’s no other way to put it.
Hours after RBNZ delivered a larger-than-expected 50bp rate cut – surprising all forecasters and pulling the rug from under the kiwi in the process – India and Thailand cut rates.
The RBI’s “unconventional” 35bps reduction was the fourth of 2019, while the BoT’s surprise 25bps cut was the first in more than four years.
(Policy rates – before and after)
The RBI’s move marks a continuation of aggressive easing following the rather unceremonious exit of Urjit Patel late last year, and there’s probably more coming. The growth outlook was trimmed again.
As Bloomberg notes, the “latest high-frequency indicators from auto sales to exports show demand at home and abroad is waning [while] a lingering crisis among shadow banks has curbed borrowings by consumers and companies”.
“The increased pace of rate cuts and an accommodative stance opens room for future rate cuts [and] neither the policy statement nor the governor’s commentary gave any hint that the central bank is done with its easing cycle”, Barclays wrote Wednesday, adding that “given persistent growth concerns and slow transmission, we now believe the RBI will reduce the repo rate by another 40 bps — possibly via two 20bp cuts — by end-2019, bringing the policy rate to 5.00%”.
Meanwhile, the BoT’s move surprised 27 out of 29 economists. Apparently, financial stability is no longer a sufficient concern to keep the central bank on the sidelines amid a burgeoning currency war and the darkening economic outlook across the globe. The appreciation pressure on the currency is a potentially serious issue considering the environment.
“Not to be outdone by the RBNZ’s larger-than-expected 50bp policy rate cut and the Reserve Bank of India’s unconventional 35bp cut, the Bank of Thailand also unexpectedly cut its policy rate by 25bp to 1.50%”, Barclays chuckled, noting that while they “had believed concerns over financial stability risks would keep the BoT on hold through this year, these appear to have taken a backseat as dark clouds gathered over the economic outlook”.
Wednesday’s trio of rate cuts out of Asia come on the heels of moves by South Korea and Indonesia last month. Obviously, the RBA is in easing mode as well, although they’ve taken a break to see how things develop. The Aussie’s plunge in sympathy with the kiwi will be welcomed by policymakers in Australia.
And so, the race to the bottom is on. One wonders how long it’s going to be before the following chart is back to its post-Lehman high at 22%.