More Monetary Policy Easing Expected Around the World

Global interest rates are likely to go even lower before they rise as financial market volatility and the specter of deflation raise fresh doubts about central banks’ ability to fulfill their mandates, policymakers and economists said.

With markets in turmoil and talk of further Chinese currency devaluation intensifying, expectations for U.S. rate hikes this year have all but evaporated and central banks from Europe to Canada and Australia are preparing the ground for more easing.

Faltering emerging market growth is exacerbating concerns, raising the risk that policy easing in too many places at once will cancel itself out and force national banks into a vicious cycle of competitive currency devaluation.

“The biggest risk for the world economy at this point is an aggressive policy of devaluation in China,” said the head of a major central bank in Europe, who asked not to be named.

“With uncertainty and volatility already high, it would have a big consequence for all economies.”

The People’s Bank of China has been fighting to keep the yuan stable since Jan. 6, when its second sharp depreciation in six months sparked fears of more devaluation as growth in the world’s second biggest economy, already at a 25-year low, slows.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza