Economic Contraction More Frightening Than Novel Coronavirus... Central Banks Worldwide Cut Interest Rates One After Another

New Coronavirus Likely to Shock Gyeonggi Economy... Emerging Markets Cut Interest Rates One After Another
Advanced Countries Face Long-Term Low Interest Rate Side Effects but Must Continue Easing

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[Asia Economy Reporter Hyunwoo Lee] Central banks around the world are rushing to cut interest rates or indicate that they are considering additional cuts. Although the global economy was expected to recover following the Phase One trade agreement between the U.S. and China, concerns have arisen that growth rates will sharply decline again due to the outbreak of the novel coronavirus infection (Wuhan pneumonia). This is interpreted as a judgment that continued 'money printing' by central banks is necessary to prepare for the economic shock that could result if the novel coronavirus situation prolongs.

According to major foreign media and central banks of various countries on the 6th, the Bangko Sentral ng Pilipinas (BSP) decided to lower its benchmark interest rate by 0.25 percentage points to 3.75%. The day before, the central banks of Thailand and Brazil also decided to cut interest rates by 0.25 percentage points each. The Reserve Bank of India (RBI) announced on the same day that it would keep the benchmark interest rate at the current 5.15%, but it had cut rates five times last year. The RBI stated in a release, "We will maintain an accommodative stance until necessary."

The reason emerging market central banks continue their accommodative stance is due to concerns that the economic impact of the novel coronavirus will increase. Factories in major Chinese cities, which are concentrated with parts plants for key manufactured goods such as automobiles, have stopped operations, signaling red lights for the performance of global manufacturers this year. David Malpass, President of the World Bank (WB), recently stated, "The novel coronavirus, causing hundreds of deaths, business activity suspensions, and supply chain adjustments due to cross-border movement restrictions, will be a major obstacle to the global economy," adding, "The optimistic outlook following the resolution of the U.S.-China trade dispute is becoming increasingly difficult, and at least the global GDP growth forecast for the first half of this year will be revised downward."

Major advanced country central banks have also indicated the possibility of additional rate cuts if necessary in response to the shock from the novel coronavirus. Masai Takako, a policy board member of the Bank of Japan (BOJ), said on the 6th, "We must continue to be vigilant about the impact the novel coronavirus will have on the global economy," adding, "If necessary, we will not hesitate to implement additional easing." Christine Lagarde, President of the European Central Bank (ECB), also stated at the European Economic and Monetary Affairs Committee meeting that day, "Uncertainty surrounding the impact of the novel coronavirus is becoming a new focus of attention," and "The Eurozone economy continues to require monetary policy support, which will protect the Eurozone from global adverse factors," signaling the continuation of an accommodative monetary policy stance.

The newly appointed central bank members in various countries are also composed of figures who strongly indicated interest rate cuts. Christopher Waller and Judy Shelton, nominees for new directors of the U.S. Federal Reserve (Fed), who are awaiting a Senate hearing on the 13th (local time), are both regarded as favorable to rate cuts. In particular, Shelton previously served as an advisor to Donald Trump's presidential campaign and argued that benchmark interest rates should be lowered as soon as possible. Earlier this month, Seiji Adachi, head of economic research at Marusan Securities, who advocated for aggressive monetary easing and low interest rate policies, was appointed as a BOJ policy board member.

Despite side effects such as rising housing prices and increasing household debt due to prolonged low interest rates, the judgment that central banks must inject more money to respond to the impact of the novel coronavirus is prevailing. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), emphasized in a media interview at the end of last month, "The novel coronavirus may cause a short-term downward effect on the global economy, and the way to prevent this and support the economy is to inject money into financial markets," adding, "Major central banks worldwide must continue to inject cash this year to prevent economic contraction."

This content was produced with the assistance of AI translation services.