Wednesday 24 January 2018

China, ECB and UK change monetary policy amid new global turmoil fears

Federal Reserve chief Ben Bernanke said last month there was
Federal Reserve chief Ben Bernanke said last month there was "considerable scope to do more" Photo: Getty Images

Mike Peacock

CHINA, Europe and Britain loosened monetary policy in the space of less than an hour yesterday, signalling a growing level of alarm about the world economy, although suggestions of co-ordinated action were played down.

Of the three, the surprise move was from Beijing, which lowered its lending rate by 31 basis points to 6pc following an interest rate cut just a month ago, which also came out of the blue.

The European Central Bank cut rates to a record-low 0.75pc following a dire run of economic data. But it steered clear of bolder moves such as reviving its government bond-buying programme or flooding banks with more long-term liquidity.

The Bank of England, whose rates are already at a record-low 0.5pc, said it would restart its printing presses and buy £50bn of assets with newly created money to help the economy out of recession.

"It is a surprise that they are moving so quickly. It shows that policymakers' concerns about the global economy have only grown," Mark Williams, an economist at Capital Economics in London, said of the People's Bank of China's action.

A raft of Chinese data is due next week, including second quarter GDP, which officials may know to be poor, he said. But they may also be trying to foster suggestions of acting in concert.

"Policymakers may have felt that cutting rates on the day that the ECB (did) the same would deliver a bigger impact, encouraging talk of a co-ordinated response to the slowdown in the global economy," Mr Williams said.

"Again, though, this might simply underline the seriousness of the downside risks."

In Frankfurt, ECB president Mario Draghi denied any globally co-ordinated central bank action of the sort seen after the collapse of Lehman Brothers in 2008.

"On co-ordination, no, there wasn't any. . . that went beyond the normal exchange of views on the state of the business cycle, on the state of the economy, and on the state of global demand," he told a news conference.

Asked if conditions were now as bad as they were in late 2008 when the world's financial system was teetering, Mr Draghi replied: "Definitely not."

The US Federal Reserve holds its next meeting on July 31 and August 1, while the Bank of Japan meets next week.

Last month, the Fed held off on another round of bond-buying, but its chief Ben Bernanke said there was "considerable scope to do more" and Wall Street bond firms polled by Reuters saw a 50pc chance of another asset purchase programme.

In recent weeks, economic evidence from Asia, Europe and the United States has pointed to a world economy running out of steam.

China's economy is widely expected to record its sixth successive slide in growth in April-June.

Purchasing manager surveys this week showed Europe's biggest economies are all in recession or heading there, while a parallel US survey yesterday showed growth in the services sector slowed in June to a two-and-a-half-year low.

Irish Independent

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