Coronavirus and Interest Rates
What is happening to global interest rates? Investors continue to follow the issue of the global spread of coronavirus.
Last week, the G7 representatives said they will use all the tools to achieve healthy and sustainable economic growth. However they did not present any specific measures to combat the consequences of the disease.
Investors focused on the Fed’s interest rate decision, as last week, the regulator lowered the rate from 1.75% to 1.25%, in response to the growing economic threats from the coronavirus. Some analysts advise this may not be the last cut of the year. Meanwhile, US President, Donald Trump criticized the Fed once again for the fact that the regulator is in no hurry to cut the rates.
The Chinese Yuan has become more popular since the start of the trade wars with the US, that caused an uncharacteristic and increased volatility. The bank rate for The People National Bank of China is currently at 4.3%.
The question now is whether the central bank will now look to decrease interest rates in order to avoid the unrecoverable damage to the Chinese economy. Activity sharply declined across the board in February as companies struggled to reopen for business or hire workers during a government-mandated shutdown, according to official and private surveys released in recent days.
Wednesday revealed shockingly bad news for services in the world’s second-biggest economy. Chinese media group Caixin said its purchasing managers index for the sector plummeted to 26.5 last month from a reading of 51.8 the month before — the lowest figure recorded by the survey since it began in 2005.
Saturday’s publication of economic statistics from China, which again was disappointing. China’s Exports fell in February by 17.2% YoY after rising by 7.9% YoY in the previous month, while certain analysts had expected a decline by 14% YoY. Imports for the same period decreased by only 4% YoY after the growth by 16.5% YoY in January. A significant difference in the dynamics of exports and imports led to a trade deficit in February of USD 7.09B, after +47.21B in January.
Traders now turn their attention to the Eurozone in addition to the US and Asia, since amongst the top 15 mostly affected by the coronavirus there are 10 European countries. Italy is currently cutting off the north from the rest of the world due to the fast increasing levels of cases, while Germany and France have more than 1,100 cases domestically. The question remains: when is the central bank likely to take action following the example set by the Federal Reserve.