What's going on?
Investors were surprised on Wednesday when India, New Zealand, and Thailand’s central banks all followed in the US’s footsteps and lowered their interest rates.
What does this mean?
Like the US, India and New Zealand were both widely expected to announce economy-boosting rate cuts that would make borrowing cheaper. But unlike the US, they announced bigger cuts than anyone saw coming… (tweet this)
India’s central bank, in fact, lowered the country’s interest rates to their lowest in nine years. “Hold my beer,” said New Zealand, which lowered rates to an all-time low (by double the amount expected). “Hold my beer,” added Thailand, which – caught between a strong currency that makes its exports more expensive and a US-China trade war that’s slowing down cross-border purchasing – lowered its rates when economists hadn’t expected any move at all.
Why should I care?
For markets: Preparing to land.
The US’s decision to lower rates appears to have provided covering fire for other economies – particularly emerging markets – to do the same. If they’d cut rates when the US’s were still rising, the subsequent fall in their currencies might’ve made it difficult to afford as many imports – limiting any real-world benefits of the rate cut. And now, as several economies simultaneously try to boost their growth, investors may fret more about eventual recessions – selling off stocks and buying up safer, low-returning government bonds like they did on Wednesday.
For you personally: Central banks can be divas.
When a major central bank lowers interest rates, it’s basically saying it won’t let you earn as high a return if your money’s sitting in “safe” investments (like cash or short-term government bonds). It’s hoping you’ll decide to invest in a more “productive” way – by buying stocks, for example, or by lending money to an infrastructure fund which can help grow the economy by building things like airports.