- US rate cut possibly part of a concerted action by the central banks of the developed world
- This does not necessarily mean rate cuts in the Eurozone or Japan
To Erste Asset Management (www.erste-am.com), yesterday’s rate cut by the US Fed of 0.5 percentage points to a target band of 1.00% to 1.25% for the Fed funds rate did not come as a surprise. The central bank had already issued a statement last Friday according to which it would react accordingly to the economic risk created by the coronavirus. The only “extraordinary” aspect to Erste AM Chief Economist Gerhard Winzer was the “relatively large” extent.
“The rate cut by the ‘most important central bank in the world’ could be part of a concerted action by the central banks of the developed world.” In the early morning hours of the very same day, the Australian central bank (RBA) had already cut its key-lending rate by 0.25 percentage points to 0.5%. “In countries where the interest rates are already very low such as in the Eurozone or Japan this loosening strategy does not necessarily have to include rate cuts. Monetary loosening can also be implemented via high liquidity provided to the banks (LTRO), expanded purchase programmes, or guidance of the market expectations (forward guidance),” as Winzer points out.
Either way, the rate cut helps soften the tightening financial environment (decline in share prices, higher credit spreads, higher volatility). This is meant to contain a negative feedback loop of falling share prices and economic growth, as Winzer concludes.
Photo: Erste AM Chief Economist Winzer: US central bank wants to thwart the tightening financial environment created by the coronavirus by cutting its interest rates
About us:
Erste Asset Management (Erste AM) coordinates, and is responsible for, all asset management activities within Erste Group. At our offices in Austria, Germany, Croatia, Romania, Slovakia, the Czech Republic, and Hungary, we manage assets of about EUR 64.19bn (as of 30 December 2019).
Erste Asset Management has been awarded the title of Best Investment Company of the Year by the trade magazine “Börsianer”.
For enquiries, please contact:
Communications & Digital Marketing
E-Mail: communications@erste-am.com
Erste Asset Management GmbH
Am Belvedere 1, A-1100 Wien
www.erste-am.com
Sitz Wien, FN 102018b,
Handelsgericht Wien, DVR 0468703
Disclaimer
This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.
The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to Art 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the website www.erste-am.com within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the website www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.
The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.
Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.
Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.