Monetary Policy in the news

Rate cuts have been announced the world over but what will be the likely effects?

This week the Bank of Thailand became the latest central bank to cut interest rates, to 2.75% from 3%. This comes exactly a week after South Korea made an identical move and Brazil cut their interest rates to all all time low, 7.25%. All these decisions have been made my policy makers to fears of a global slowdown due to stumbling growth in Europe and China.

These economies who are largely dependent on exports as a source of foreign exchange will hope that their looser monetary policy stance will enable their currency to weaken and make their exports more competitive. However, tranches of quantitative easing undertaken by major developed nations who already have record low interest rates, such as Japan and the US, have not aided currency depreciation, largely due to an appetite for their debt from world markets. The Economist provides an excellent summary of the reasons behind QE and currency values in this article.

All this should provide plenty for debate regarding the reasons behind such widespread and unique loosening of monetary policy by decision makers and what if any effects this may have for emerging economies given the patterns we have seen from the developed world.

This is a useful video, which I am sure must have appeared on this blog previously, explaining QE from the Bank of England:

Bank of England Funding for Lending