Tuesday 3rd March 2020
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There is considerable discussion in the media that Central Banks will move to reduce interest rates in response to the reduction in international confidence due to China /US tensions and Coronavirus. Australia has just taken drastic action this afternoon and dropped their OCR to 0.5%.
Manufacturing in China essentially ground to a halt. Several cities were put into lockdown, whole provinces shuddering to a crawl in an attempt to contain the virulent illness. As a result, companies around the world were shocked to realise that their components, parts and products were no longer being produced.
For decades the world’s largest companies had enjoyed the low - cost advantages of producing almost everything in China, only to be reminded that putting too many eggs in any basket, no matter how strong it seemed, was asking for trouble.
Three months later, governments throughout the world are being forced to confront the reality that economic slowdown to negative growth is now an inevitability for the first six months of 2020. As a result, central banks are being called in to mitigate as much of the damage as possible.
Jerome Powell, Chairman of the Federal Reserve in the United States, has signalled the US Federal Reserve could cut rates by at least 100 basis points by the end of 2020. It is safe to assume that markets will see the Fed make a significant rate cut before the end of March.
If the Fed cuts rates, or more appropriately, when the Fed cuts rates it is expected that most OECD central banks will follow.
The Reserve Bank of Australia has already announced a rate cut to a record low of 0.50%. Adrian Orr of the RNZ is expected to make a similar announcement shortly. The next RNZ OCR review is only scheduled for the 25th of March, but the sickening pace of events is unlikely to allow the Governor to wait that long.
As New Zealand’s economy reels from the impact of China’s slide, affecting our dairy, tourism, education and travel industries, action should be, and likely will be, taken swiftly. We believe that the Governor will make a drastic rate cut, from 1.00% to 0.5%, in line with the move from across the ditch.
A substantial cut for sure, but in light of the election coming up here in September, and an increasing strain on global markets so sharp that even the Americans begin to shudder before it, nothing less should be expected at this time.
General Finance is watching world events closely and will react quickly if there is movement. As such we may not be able to give you notice of a rate reduction.
If you are interested in locking in a current rate, please complete the application form and advise the date your funds will be available to make the deposit.
We will lock in the rate on the date we receive the application form and we will hold it until the date you state your funds are available. That date must be before the 31st of March 2020.
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