RBA Sucked into an Undeclared Currency War! South Korea Latest to Cut Interest Rates!

• South Korea Is the Latest to Cut Interest Rates! 
  by BETTINA WASSENER, http://www.nytimes.com/ 
  HONG KONG — The South Korean central bank surprised analysts on Thursday by trimming interest rates by a quarter of a percentage point — the latest central bank to cut rates in the face of tepid growth.
  –
  Australia, Europe and India have all lowered borrowing costs this month in a bid to oil the wheels of faltering economic activity.
  –
  The euro zone is still haunted by its festering debt crisis, while in Asia, the giant Chinese economy is in the midst of a major transition that entails slower growth driven more by domestic demand. In addition, economists have said the constant saber-rattling from North Korea may take a toll on sentiment.
  –
  In trimming rates to their lowest level since early 2011 — the cut took the base rate to 2.5 percent — the central bank in Seoul joined growth-bolstering efforts by the government, which on Tuesday signed off on plans for billions of dollars’ worth of additional stimulus spending to prime the economic pump.
  –
  The “sluggishness of economic activities in the euro area” has deepened, the Bank of Korea said in a statement accompanying its rate decision, while economic indicators in emerging-market countries like China “have been weaker than initially anticipated.”
  –
  For South Korea, the weakening of the currency in Japan, whose companies are major competitors to South Korean exporters in many areas, adds to the pain of an already tough trade environment. The yen has fallen sharply against major currencies, including the South Korean won, in the wake of efforts by the Japanese government and central bank this year to combat persistent deflation and reinvigorate growth.
  –
  read more!
  –
• RBA sucked into an undeclared currency war! 
  by Alan Kohler, http://www.abc.net.au/news/thedrum/
  Australia’s domestic economic conditions do not, in aggregate, justify a rate cut but the currency does, writes Alan Kohler.
  –
  With a resigned sigh, Reserve Bank governor Glenn Stevens has been forced by Mario Draghi and Shinzo Abe to get out his trusty popgun and join the currency wars.
  –
  Cannons are booming across oceans – interest rates at zero, cash ordnance pouring into the financial system. “Take that,” squeaks the RBA, popping the cash rate by 0.25 per cent to 2.75 per cent.
  –
  The other factor forcing its hand is the deposit wars among the Australian banks, which has kept both deposit and lending rates relatively high and muted the effect of monetary policy.
  –
  It has nothing to do with the economy being in the same swamp it was the last two times that interest rates were this low, in 2009 and 1960. It is, as always, not as good as the Government says it is and not as bad as the Opposition says it is, although the latter is more correct than the former.
  –
  But domestic economic conditions do not, in aggregate, justify a rate cut. As Glenn Stevens said in yesterday’s statement, growth is “a bit below trend” and unemployment remains “relatively low”. But the currency does justify it.
  –
  The exchange rate is “unusual given the decline in export prices and interest rates” said the governor, master of the understatement. In fact it has been stable for two years, apart from a short-lived correction in each year as global growth slowed.
  –
  Stevens’ hand was forced by last week’s rate cut by the European Central Bank (ECB) and, more importantly, the statement by its president Mario Draghi that they had an “open mind” about negative interest rates – that is, charging the banks to park money with the ECB.
  –
  read more!

end