Central Banks Resort To Rate Cut As Recession Worries Mount

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Central banks across the globe are in the process of cutting down the interest rates. There are 30 banks who have already taken this step. This is done to curb the concerns of recession, trade wars between the economic superpowers and that of Brexit.

In the previous week the central banks of Thailand, New Zealand and India lowered their interest rates to greater percentage than what was expected. Mexico has reduced its lending rates last Thursday; this is the first time that the country has cut its interest rates since 2014. President Donald Trump has already asked Federal Reserve to lower the interest rates. Other countries have also started reducing the borrowing rates of interest.

This approach is seen the end of efforts from the central banks to return to normal economic growth after the Great Recession. Now the financial experts are creating new policies to prevent the negative impact of recession on the economy. According to the data from Refinitiv, this kind of group activity of reducing interest rates was last seen during the Great Recession. According to some analysts, this move can save the economies from a messy recession, while others think that this can have a negative impact on the monetary policy.

Through decades Central Banks generally reduce interest rates or buy bonds in order to control borrowings and spending within the country. In several economies, the rates are already too low to permit cheap money transactions. In these cases a cut in the interest rates can keep the currencies cheap.

The benefits of having cheap currency is, this allows more exports and lowers the number of imports. This in turn props up the domestic price of goods and services. Central banks generally avoid linking the monetary policies with exchange rates. This step has been taken by Japan in February to strengthen the value of Yen.

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