After 2008, the first emergency rate cut by the Federal Reserve triggered a global "interest rate cut"?

(Fighting New Crown Pneumonia) After 2008, the first emergency rate cut by the Federal Reserve triggered a global "interest rate cut"?

China News Agency, Beijing, March 4th (Xia Bin) Without a monetary policy meeting, on the evening of the 3rd, Beijing time, the Fed suddenly cut interest rates. The Federal Reserve voting members unanimously agreed to cut the Federal Reserve Fund interest rate by 50 basis points. This is the first emergency rate cut since 2008, and it is also the sharpest rate cut.

What is the Fed's emergency rate cut? A statement issued on the same day stated that the new crown virus poses changing risks to economic activity. In response to the risks, while supporting the goals of full employment and price stability, the Fed decided to cut interest rates.

Dollar and Renminbi infographic. Photo by Li Jinlei

Affected by the new crown pneumonia epidemic, U.S. stocks plunged last week, but this time interest rates were cut and financial markets have not "medicated the disease." Within minutes of the announcement of the interest rate cut, although all three major US stock indexes rose sharply, they all ended with a close to 3% decline. And the 10-year US Treasury yield fell below 1%, the first time in history.

Fidelity International's chief investment officer, Paras Anand, told China News Agency that the worse the economic outlook, the more investors expect the government and the central bank to provide sufficient liquidity to the market. This situation has continued to occur in recent years. However, investors should also pay attention to whether the market correction (the recent plunge in US stocks) indicates that the previously effective scripts have begun to fail, and policy intervention and increased liquidity may no longer extend the economy and return cycle.

On the 3rd Beijing time, before the Fed cut interest rates, two central banks had completed the same operation.

The Reserve Bank of Australia announced a 25 basis point rate cut to 0.50%, a new low Australian interest rate. It stated in a resolution statement that this decision is a response to the new crown pneumonia epidemic, which has a "significant impact" on the economy and will closely monitor developments .

The Bank of Malaysia followed closely, announcing a 25 basis point reduction in overnight policy rates to 2.50%. The Bank of Malaysia said that the global outbreak has tightened financial conditions and financial market volatility has once again risen.

It is highly likely that the three central banks that cut interest rates on the same day will not “stand alone”, and the epidemic will trigger a global “interest rate cut”.

Goldman Sachs chief economist Jan Hatzius said that the epidemic will likely put the global economy on the verge of recession, and it is expected that most major central banks will cut interest rates. A concerted effort may be the smartest way for the central bank.

Recently led by US Treasury Secretary Mnuchin and Federal Reserve Chairman Powell, the Group of Seven (G7) finance ministers and central bank governors held a conference call to discuss measures to deal with the epidemic and its economic impact. A joint statement issued after the meeting stated that, given the potential impact of the new crown pneumonia epidemic on global growth, the commitment was made to use all appropriate policy tools to achieve robust and sustainable growth and prevent downside risks.

Zhang Yu, a researcher at the Institute of International Monetary Studies at Renmin University of China and chief macro analyst at Huachuang Securities, said from the Fed's operation of benchmarking the 2008 financial crisis, whether the governments of mainstream global countries will jointly adopt policies to protect economic stability (such as More proactive fiscal policy, expansion of tables to release liquidity, etc.) are worthy of attention.

Yang Yewei, chief macro analyst of Southwest Securities, believes that the development of overseas epidemics is not optimistic, and the cumulative number of confirmed diagnoses in South Korea, Japan, Italy, France, Germany and the United Kingdom has continued to rise rapidly. In order to respond to the impact of the epidemic, the global central bank is expected to enter a new " "Rate cut period", global interest rates will continue to fall.

The US has cut interest rates sharply. Where does China go? Zhang Yu believes that China ’s domestic monetary policy itself is expected to have incremental actions, such as a reduction in the benchmark deposit interest rate and a directional lowering of the standard is expected to land in March, while the new work MLF (Intermediate Borrowing Convenience) "rate cuts" and reverse repurchase rate cuts It is more of a "quick-effect rescue" to deal with short-term emotional fluctuations. For example, if domestic equity assets have not experienced a subsequent decline and the epidemic has not repeated, it may not necessarily rush to follow the United States.

Yang Yewei said that for China, the widening of the spread between China and the United States will promote foreign capital inflows and the appreciation of the renminbi, which is good for the stock market and the bond market. However, the main driving force of the bond market is still domestic, and changes in the central bank's monetary policy and physical financing needs remain the main factors.

Chen Yulu, deputy governor of the People ’s Bank of China, has previously stated that the next step will continue to maintain a reasonable and sufficient liquidity, to guide the overall interest rate of the market to continue to fall through the role of policy interest rates, and reduce corporate financing costs. (Finish)