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There hasn’t been this many central banks easing policy in nearly two decades.
That’s from JP Morgan analysts who say traders in short-term lending markets are pricing rate cuts from central banks for developed markets, such as Australia and the United Kingdom, between 2020 to 2021. With the global economy under pressure from a U.S.-China trade war, monetary policymakers are expected to lower interest rates to arrest the escalation of growth worries.
“The evolution of the macro outlook, the risk of spillover from the corporate to the household sector or from manufacturing into services warrant some caution, especially in the context of the lingering risks from trade war and Brexit, with the U.S. Presidential election later in the year,” said JP Morgan strategists, in a research note published on Saturday.
The Organization for Economic Cooperation and Development, a group mostly composed of developed countries, projected the global economy would slow from 3.6% in 2018 to 2.9% this year, its weakest growth rate since the 2008 financial crisis.
The chart below shows that overnight lending rates are projecting additional easing by the end of 2019. JP Morgan says the last time money markets were projecting further rate cuts in the next two years from developed market central banks was back in 2000.
In the sample, they included the European Central Bank, the Federal Reserve, the Bank of England, the Swedish Riksbank, the Reserve Bank of Australia, and the Bank of Japan.
Bank of Japan Governor Haruhiko Kuroda said last week that the central bank would aim to push short-term rates lower if he had to ease policy further. And analysts say the Reserve Bank of Australia is expected to cut its benchmark cash rate by 25 basis points to 0.50%.
More broadly, Fitch Ratings said last month that central banks across the world, not just those in developed markets, were making an abrupt turn on their plans to normalize interest rates, with close to a third choosing to ease outright.
Fitch estimated the share of central banks shifting tack in the last six months stood at its highest levels in a decade.
Global bond markets have rallied in part due to the looser monetary policy. A few weeks ago, the 10-year Treasury note yield TMUBMUSD10Y, +0.05% fell to a recent closing low of 1.42%, its lowest since Aug. 2016. The benchmark rate was last seen trading at 1.69%. Bond prices move in the opposite direction of yields.
See: Central banks haven’t shifted direction this abruptly in a decade