Zero Interest Rates: Consequences for the Financial Sector — Vox Views
Zero Rates, Zero Effect: Central Bank Actions Do Not Reassure Investors
Financial markets and oil continue to show negative dynamics, despite the measures taken
Financial markets and oil prices continued to fall on Monday amid fears over the new coronavirus, which were not moderated either by the second emergency cut in US interest rates in two weeks, or by other measures to support the economy..
Central banks across Asia and Europe are also cutting interest rates and injecting additional funds into the system in an attempt to cushion the economic impact of the virus, but so far have failed to calm panicked investors..
The European Volatility Index rose to record highs, while leading European exchanges fell nearly 8 percent at the opening of the day. Similar dynamics expected on Wall Street.
Restrictions on short selling were imposed in Europe, while bond markets
Oil prices fell more than 9 percent to about $ 30 a barrel. Investors worried about how coronavirus will affect global fuel demand.
The European Tourism and Leisure Index has almost halved in three weeks. Losses await airlines and travel companies in other countries.
On Sunday, the US Federal Reserve urgently lowered the base interest rate to almost zero, and on Monday, the Central Bank of Japan announced a new policy easing, promising to increase the volume of buybacks of securities of exchange-traded funds and other risky assets..
New Zealand’s central bank on Monday cut interest rates by 75 basis points to 0.25 percent, and the Reserve Bank of Australia injected additional funds into the country’s financial system. South Korea and Kuwait cut rates, while Russia and Germany create massive anti-crisis funds.
Japanese Prime Minister Shinzo Abe said that on Monday afternoon, the leaders of the G7 countries will hold a teleconference to discuss the crisis.
MSCI Index Sank 5.2 Percent To Lowest Since Early 2017, And Japan’s Nikkei Shed 2.5 Percent.
Data from China shows how badly the world’s second largest economy has suffered. Official data show a record decline in activity. Industrial production declined 13.5 percent and retail sales 20.5 percent.
Blue chips on the Shanghai exchanges fell 4.3 percent, despite the unexpected decision of the Chinese central bank to inject a new portion of funds into the financial system. Hong Kong Hang Seng Index Down 4 Percent.
Australian index S&P / ASX 200 closed 9.7 percent drop – record decline since 1987 crisis.
US President Donald Trump, who has long called the Fed for policy easing, welcomed the decision to cut interest rates, calling it “very good news.”.
The rate cut, along with the Fed’s pledge to increase bond buybacks, drove 10-year Treasury bonds from 0.95 percent to 0.63 percent, although ahead of the opening of the U.S. trading session there was an increase of 0.74 percent..
The fall in Treasury bonds hit the dollar, which fell 1.9 percent against the Japanese yen. This is the second sharpest drop since May 2017..