Yes, we are talking about the policy makers' race to bring interest rates to 0%. On Nov 6, the Bank of England just slashed interest rates to their lowest level since 1955. Less than an hour later, the European Central Bank (ECB) cut its key interest rate too, but by only half a percentage point, to 3.25%. Shortly after the Bank of England's big cut, Switzerland's central bank reduced its policy rate by half a percentage point, to 2%. Earlier in the week, the Reserve Bank of Australia reduced its key rate, from 6% to 5.25%. Central banks in India and Vietnam also cut their benchmark interest rates in November.
The trend is pretty obvious. Until the summer, the main concern for most central banks had been whether they could cap inflation. Now the race is on to ease monetary policy in order prevent a prolonged economic slump. The Fed leads the way, and now other banks follow. The question is, whether this expansionary monetary policy will have an effect before interest rates actually drop to zero.
1 comment:
A possibility could be that the expansionary monetary policy won't work until they actually stop lowering interest rates-if they keeps getting lowered, people will expect them to lower even more, and will wait until they think that interest rates will stay at the same level. If that is the case, then the countries may actually be hurting the economy by continually lowering interest rates.
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