New Zealand and South Korea both cut interest rates yesterday, following a host of other countries who have done so in 2015.
South Korea’s central bank cut its interest rate to a record low of 1.5 per cent yesterday, its fourth cut in the last 12 months. Rates have been edging down since 2012, but the latest cut has been prompted by an outbreak of Middle East Respiratory Syndrome (MERS), which is causing a drop in visits to shopping centres and also knocked exports.
“Although the domestic economy had been improving prior to the outbreak of MERS, the disease now appears to be stopping the recovery in its tracks, at least in the short-term. MERS has claimed nine lives and infected 122 to-date. There have already been signs of public alarm, with schools closed, public events called off, and tens of thousands of visitors cancelling their travel plans,” said economist Krystal Tan from Capital Economics.
Meanwhile, the Reserve Bank of New Zealand cut rates in response to a fall in global dairy prices.
“The weaker prospects for dairy prices and the recent rise in petrol prices will slow income and demand growth and increase the risk that the return of inflation to the midpoint would be delayed,” it said.
The two central banks join a host others who have slashed rates this year, including in India, China, Sweden, Australia and Canada. Sweden and the Eurozone have even had to launch unconventional policy measures such as quantitative easing, where central banks create new money to buy bonds, to boost spending.
It contrasts with the UK and the US economies, where the next move in interest rates is expected to be upward.