WSJ weighs in on easing cycle

Global Easing Cycle Gains Momentum as Central Banks Cut Rates

With Fed and ECB expected to cut rates soon, central banks in South Korea, Indonesia and South Africa move first

People walk across the road in front of the Bank of Korea in Seoul on Thursday. PHOTO:JUNG YEON-JE/AGENCE FRANCE-PRESSE/GETTY IMAGES

By

Brian Blackstone

July 18, 2019 10:27 am ET

ZURICH—Central banks in Asia and South Africa lowered their interest rates Thursday, joining a global easing bandwagon that started earlier this year in the Asia-Pacific region and is expected to include the U.S. and Europe within weeks.

The latest moves, by central banks in South Korea, Indonesia and South Africa, underscore the global nature of the brewing rate-cutting cycle, as policy makers attempt to ward off signs of weaker economic growth. With economies and financial markets interconnected, expectations of lower interest rates by the Federal Reserve and European Central Bank have given central banks in emerging markets scope to lower rates and prop up their economies.

“I think this will provide further impetus for Asian central banks in their easing cycle ahead,” said Prakash Sakpal, an economist at ING Bank.

Since April, New Zealand, India, Malaysia and the Philippines have lowered rates. China’s central bank has taken a number of measures to encourage lending to small businesses, and investors expect it to reduce benchmark rates if the Fed lowers its rates.

The Bank of Korea unexpectedly lowered interest rates for the first time in three years Thursday, responding to pressure to ease policy as economic growth slows. It lowered the base rate by a quarter percentage point to 1.5%.The move took analysts by surprise. 

Of the 19 analysts polled by The Wall Street Journal ahead of the decision, 12 had forecast the central bank would stand pat this month and cut the rate in August.The central bank signaled more rate cuts may be coming, downgrading its growth and inflation forecasts for 2019.