ECB cut rates by 50 bps to 2%. They have cut rates 225 bps since October. The Bank of Thailand also cut rates by 75 bps to bring their levels down to 2%. The Bank of England cut rates last week by 50 bps to 1.5% the lowest levels in 315 years. The old levels of 2% were during the Great Depression.
Every major developed country now has rates at 2% or less. We could lump the world into a number of groups.
There is the "zero rate club" of the US, Japan, Switzerland, and Singapore. The trading target may be slightly above zero but for trading purposes the nominal rates are close to zero. The objective is stop deflation and provide stimulus for their economies.
There is the "I'm heading for zero but have not gotten there club" which includes the ECB, Canada, UK, Sweden, Norway, Slovakia, Czech Rep, and Denmark. This would be the developed countries and Europe. There will be slight differences with some of the Eastern European countries keeping a slight premium with their bank rates.
The third club would be the "my nominal rates are higher, but I have a negative real rate club" This would be most of the rest of the world. Their inflation rates have been a little sticky so the nominal rates have not yet been taken down to G7 levels.
The final club is "the outlier club" where both nominal and real rates are high relative to the rest of the world. This would include Brazil, Turkey, Hungary, and maybe Mexico. With the exception of Brazil, these are countries that have the potential for currency crises and would be on any sovereign watch lists.
No central bank is worried about negative real rates. There is little or no reason to hold government paper in this environment, yet gold is below levels of one year ago.
Every major developed country now has rates at 2% or less. We could lump the world into a number of groups.There is the "zero rate club" of the US, Japan, Switzerland, and Singapore. The trading target may be slightly above zero but for trading purposes the nominal rates are close to zero. The objective is stop deflation and provide stimulus for their economies.
There is the "I'm heading for zero but have not gotten there club" which includes the ECB, Canada, UK, Sweden, Norway, Slovakia, Czech Rep, and Denmark. This would be the developed countries and Europe. There will be slight differences with some of the Eastern European countries keeping a slight premium with their bank rates.
The third club would be the "my nominal rates are higher, but I have a negative real rate club" This would be most of the rest of the world. Their inflation rates have been a little sticky so the nominal rates have not yet been taken down to G7 levels.
The final club is "the outlier club" where both nominal and real rates are high relative to the rest of the world. This would include Brazil, Turkey, Hungary, and maybe Mexico. With the exception of Brazil, these are countries that have the potential for currency crises and would be on any sovereign watch lists.
No central bank is worried about negative real rates. There is little or no reason to hold government paper in this environment, yet gold is below levels of one year ago.
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