Central Banks Have Lost Control Of The World
With the world’s oldest central bank – Sweden’s Riksbank – taking the plunge into negative rates, there have been 19 ‘eases’ by central banks this year, Morgan Stanley warns of “ghosts of the 1930s.” With competitive ‘easing’ stoking fears of international currency wars,The Telegraph notes however that looser monetary policy is not the order of the day everywhere in the world, and herein lies potential danger for the world economy.
The world’s interest-rate policies…
Click image for interactive version
Looser monetary policy is not the order of the day everywhere in the world (see map above), and herein lies potential danger for the world economy.The expectation of a normalisation of monetary policy by the Federal Reserve has resulted a sustained rally in the US dollar. Such strength in the world’s reserve currency has simultaneously applied pressure on economies pegged to the greenback.
Meanwhile rate hikes from the Fed – which are expected to begin later this year – will naturally leader to tighter monetary conditions in economies everywhere from Mexico to Hong Kong.
It is this divergence in the actions of the world’s major central banks which could lead to a new global liquidity crisis, according to the governor of the Bank of England.
Despite robust job creation and economic output in the domestic economy of the US, the trend towards lower global interest rates will probably slow the extent of the Fed’s rate hikes once it finally gets off zero, according to Kit Juckes at Société Générale.
“The best we can hope now is that the dollar’s advance is orderly and the impact on global capital flows is limited” said Mr Juckes.
The 19 Policy ‘eases’ so far… (or 24 if Romania’s 2 and Denmark’s 4 are counted)
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