Central Banks See Here a Cut, There a Cut, Everywhere a Cut, Cut

Michelle Jamrisko

22 Jul 2019, 06:01 AM IST

(Bloomberg) -- Trade-war jitters and slower growth are prompting more interest-rate cuts by spooked central bankers, who are already feeling under pressure with little help from governments.

Here’s our weekly wrap of what’s going on in the world economy.

It’s a Dove’s World

The dovish wave sweeps on. South Korea surprised with a rate cut on Thursday, feeling the pressure of slumping exports and tensions with Japan. The same day, Indonesia lowered its benchmark for the first time in almost two years and pledged more easing to come. South Africa joined in with a rate reduction after sharply cutting its forecast for economic growth and Ukraine also followed suit.

The Bank of England saw U.K. inflation stick to its sweet spot of 2%, and an uptick in wage growth that would suggest tightening in a different backdrop. But they are hemmed in by Brexit for now.

Two Federal Reserve bigwigs stressed the need for quick action to support growth in speeches Thursday, exciting investors betting on a Fed cut of as much as half a percentage point later this month.

To help sort it all out, here’s our updated guide to what the world’s top central banks will do next.

Central Banks See Here a Cut, There a Cut, Everywhere a Cut, Cut

Shrinking Toolbox

Even as interest-rate cuts make the big headlines, central bankers are wary that it won’t be enough. They’re sick of having to go it alone, and Group of Seven finance ministers are getting an earful about loosening purse strings to aid the effort.

Thai policy makers, among others, are arguing for a focus on other tools even as their currency surges. Even Turkey’s politically installed central bank chief pledged not to rely too much on interest-rate easing.

Pimco is warning that with all the complications around managing the flows, a currency war can’t be ruled out. It’s already a tough time to be a central banker, and Jerome Powell feels this all too well, as Chris Condon profiles in Bloomberg Businessweek’s cover story.

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Trade Tremors

No good (trade) news goes unpunished. While top U.S. officials signaled they’d chat this week with their Chinese counterparts as a gateway to a potential Beijing visit, “Tariff Man” reiterated the U.S. has room to apply more levies on China. It was a reminder that President Donald Trump will do everything to ensure the U.S. doesn’t appear to be softening -- even in a week when China showed more vulnerability, posting the weakest growth on record.

Trade-war contagion remains widespread: Europe is on edge as it awaits a World Trade Organization ruling that could accelerate U.S. tariffs as retribution for illegal aircraft subsidies. Japan is keeping a hard line as it maintains export curbs of its own in a fresh flare-up with South Korea. And in the data, Japan and Singapore joined a spate of Asian economies seeing deepening export slumps.

Decent for U.S., Soft for Rest

While American data haven’t been roundly solid -- and housing showed some weakness in a report this week -- plenty of reassuring signs remain. Retail sales and factory output were solid in June, the Fed’s Beige Book sees a “generally positive” outlook, and Goldman Sachs reckons growth could be underestimated by as much as a full point.

Elsewhere, North Korea is in its worst downturn since the 1990s, Russia is seeing no break in its slide, and investors are pretty glum about Germany. Hong Kong, meanwhile, is seeing economic stress from ongoing protests.

Chart of the Week

To contact the reporter on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net

To contact the editors responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, Fergal O'Brien, Zoe Schneeweiss

Central Banks See Here a Cut, There a Cut, Everywhere a Cut, Cut