3 nations slash interest rates amid fears of global tradewar
Central banks in India, Thailand and New Zealand moved to shore up their economies Wednesday amid fears that global growth will become the biggest casualty in the spiraling trade war between the United States and China.
Monetary authorities in all three countries cut interest rates in a series of unexpected moves that shook currency markets just two days after China allowed the yuan toweaken, amove that prompted President Donald Trump to label Beijing a currency manipulator.
China’s currency has steadied in the days since it crossed a critical threshold Monday, but the world’s markets are still uneasy. On Wednesday, stocks on Wall Street tumbled at the open, losing more than 1.5 percent. The rate cuts signaled that more countries are bracing for tougher weeks and months ahead.
“This is a defensive action by countries seeking to protect themselves from the collateral damage of rising global trade tensions, amid weakening domestic growth,” said Eswar Prasad, former head of the International Monetary Fund’s China division.
If Beijing continues to allow its currency to weaken against the American dollar, more countries could feel forced to respond, leading to a damaging currency war that could revive inflation and even further fray the bonds of global trade.
Investors’ worries that Australia’s central bankmay be next to act sent the Australian dollar sliding to its lowest level against the American dollar in a decade.
“These moves signal the possibility of the trade wars morphing into a broad currency war that involves not just the main participants in the trade disputes but also countries that are on the sidelines but exposed to the fallout,” Prasad said.
Last week, the Federal Reserve in the United States cut its benchmark interest rate for the first time in a decade in a precautionary move that may have also helped prompt central banks around the world to consider rate cuts. And Trump threatened tariffs of 10percentonsome$300billionworth of additional Chinese goods.
“These new tariffs raise recession risks for the U.S. sometime next year due to increased uncertainty, an unwillingness to invest in such an environment and ultimately an unwillingness to hire,” said Steve Cochrane, chief Asia Pacific economist at Moody’s Analytics. “International trade will slow further and is at risk of an outright decline.”