Recap of the interest rate wars

The race to the bottom in the interest rate war continued yesterday as low growth, disinflation and deflation continue to dog the global outlook.

China
Source: Bloomberg

- Since the collapse of Lehmann Brothers in 2008, there have been 554 rate cuts around the world – we have never seen rates this low collectively.

- Yesterday saw the two largest countries in the world cutting rates again.

- India cut rates by 25 basis point at an unscheduled meeting, placing India in the sweet spot for capital inflows and economic growth – SENSEX reached 30,000 points for the first time ever, Nifty broke through 9,000 on the news. However, both were down 1% by the close.

- The People’s Bank of China cut the seven-day special lending repurchasing rate to 5.5% from 7% and the overnight repurchasing rate to 4.5% from 5%. This comes as the week long National People’s Congress begins and the moves on interest rates last Sunday.

- Today, China’s central government will release its GDP and inflation forecast. We see this as factored in. However, it is still likely to have an effect on Asian trade.

- Overnight the Bank of Canada kept rates on hold at 0.75%. Inflation in the country fell, as expected, on the back of the oil price decline. However, core inflation remains in line with expectations at 2%, as the low CAD supports the underlying read.

- Poland cut its cash rates by 50 basis points to 1.5% - a record low citing prolonged deflation. However, in the same breath, it declared its easing cycle over, suggesting it had now exhausted this option.

- The RBA remains on track for at least one more cut by May. The interbank market is currently pricing in a 100.3% chance of a 25 basis point cut of this happening. Considering Glenn Stevens’ history and dependence on CPI, the market believes a May cut is more likely over the April meeting – time will tell.

- US moderation is starting to kick in. Markets have begun to pull back and economic data in February is slowing, leading the market to believe rate hikes are more likely at the end of the year rather than mid-way through.

- The conclusion from all this is that by the end of June, the 554 rate cuts figure will be higher still.

Ahead of the Australian open

More macro data from Australia today with the release retail sales and trade balance. Both are estimated to be flat and feed into the general belief that Australia is growing at below trend. Yesterday’s GDP was sluggish at best and if you look at GDP on a per capita basis, growth year-on-year is a mere 1.4%.

We are currently calling the ASX 200 down a handful of points to 5893, as commodities continue to slide and profit-taking ramps up. The market closed below Tuesday’s close. suggesting bears are starting to take over the market after being disappointed by the RBA.

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