In the past week, central banks in Denmark, Turkey, India, Peru and Canada have announced cuts in interest rates, which will lower the value of their currencies. The Canadian central bank, which made a surprise decision to cut its rate on overnight loans by 0.25 percentage points on Wednesday—the first such reduction in almost five years—said the sharp fall in oil prices had increased downside risks on inflation and financial stability. An interest rate cut was needed to return the economy to full output, it said. Since Australia, like Canada, is a commodity-exporting country, the Canadian decision has increased pressure on the Australian central bank to reduce rates. Together with the QE programs in Europe and Japan, the effect of these measures is to lower the value of the various currencies and apply upward pressure on the US dollar. In effect, this week’s decision represents an escalating currency war in which each of the participants tries to offload the effects of deflation onto its rivals. Yesterday’s European QE decision will not bring economic recovery. Instead, it will intensify the deepening global conflict between rival economies.
Posted on: Sat, 24 Jan 2015 18:28:53 +0000
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