Central banks set to flood market with cheap loans as trade war threatens to plunge global economy into recession
- Analysts expect central banks in the US, India, Indonesia, South Korea and Malaysia to ensure ample liquidity if their economies show signs of weakening
- Traders expect a 70 per cent chance of a US rate cut in July; Hong Kong’s Linked Exchange Rate System to ensure HKMA moves lockstep with the Federal Reserve
The era of cheap funding is set to return as central banks worldwide cut interest rates to stimulate slowing growth amid an escalating global trade war that could tip the world economy into recession, according to analysts.
The chances of a global recession have risen after the US last month raised tariffs on US$200 billion worth of Chinese goods to 25 per cent from 10 per cent while threatening to impose tariffs on another US$300 billion more of Chinese goods. China hit back by raising tariffs on US$60 billion of US products from June 1. It has also cranked up the tension with major trading partners Mexico and India.
Analysts have cut China’s gross domestic product growth forecasts for this year, while the American business community is worried that the US will enter a recession next year, which could drag the global economy with it.
On Thursday, although the European Central Bank decided to leave its record-low interest rates unchanged, it left the door open for further rate cuts as the global trade war and Brexit weigh the euro zone economy down.
But the first to act was the Reserve Bank of Australia. On Tuesday the Australian central bank announced its first rate cut in three years, reducing its cash rate by 25 basis points to a record low of 1.25 per cent.