Central Banks: Mind the Divergence
The global economy is slowing, following a synchronized cyclical upswing in 2018 driven by a procyclical U.S. fiscal stimulus. Since then, a trade war between the U.S. and China has stalled global momentum, with global PMIs bearing the brunt, businesses postponing investment decisions and Central Banks easing monetary policy as a result. Despite their best attempts to sustain the expansion, Brexit’s twists and turns have caused uncertainty to persist, adding to Eurozone and global woes.
The ECB’s Mario Draghi’s exit marked extraordinary stimulus, cutting interest rates by 10bps to -0.50% and restarting monthly asset purchases to the tune of €20 billion. The decision was met with dissent — justified or not — it's a double edge sword, which allows inflation to converge towards the ECB’s target but lessens its ability to respond to a crisis, as I argued here. Meanwhile, the FED has lowered the Fed funds rate twice, to 1.75% — 2.0% and is turning preemptive in the face of global headwinds.
Emerging Markets (EM) Central Banks follow the Fed and ECB dovish trend
Following the FED’s doveish tilt, global Central Bank’s have followed suit, with the Banco de Brazil cutting interest rates by 150 basis points (bps) to 5.5%, Banco de Chile by 100bps to 2.0%, Banco de Mexico by 50bps to 7.75%, Hong Kong by 25bps to 2.25, Indonesia by 75bps to…
