Central Bank Easing and Record Stocks: Two different responses to divergent perceptions

There are about 20 national central banks that just eased via cut rates (17), lower reserve requirements, QEs et. al.

Just to be make clear what the streak of central bank rates have been about, I posted below some of the news covering these actions

[all bold mine]

India (January 2015)

From BBC

The RBI cited a "sharper-than-expected decline" in the price of fruits and vegetables since September last year as one reason for the policy shift.

It also said "ebbing price pressures in respect of cereals and the large fall in international commodity prices, particularly crude oil" had played a part in the move.

The RBI has been under pressure from government and businesses to reduce its interest rate to give the struggling economy a boost.

China (February 2015)

Reuters:

China's central bank made a system-wide cut to bank reserve requirements on Wednesday, the first time it has done so in over two years, to unleash a fresh flood of liquidity to fight off economic slowdown and looming deflation.

The announcement cuts reserve requirements - the amount of cash banks must hold back from lending - to 19.5 percent for big banks, a reduction of 50 basis points that would free up 600 billion yuan ($96 billion) or more held in reserve at Chinese banks - which could then inject 2-3 trillion yuan into the economy after accounting for the multiplying effect of loans.

Indonesia (February 2015)

Bloomberg:

The country’s economy shrank last quarter from the previous three months, capping the weakest year since at least the global financial crisis on falling commodity prices and cooling investment. Policy makers are cutting borrowing costs before potential interest-rate increases in the U.S. this year raise the risk of fund outflows from emerging markets….

“The policy is in line with efforts by Bank Indonesia to manage the deficit in the current account toward a healthier level,” the central bank said in its statement. “The recovery of the global economy is expected to still be ongoing, although uneven.”

Russia (January 2015)

New York Times:

The rate cut suggested that Russia viewed the banking troubles as a more pressing worry than the high inflation caused by the declining value of the ruble. Inflation is now about 13 percent.

“Today’s decision,” said Elvira Nabiullina, the governor of the Bank of Russia, “is intended to balance the goal of curbing inflation and restore economic growth.”

Russia is fighting a swirl of forces. The oil-dependent economy has been battered by the low price of crude, which is down more than 50 percent since this summer. Western sanctions over the Ukraine crisis only complicate matters, particularly for Russia’s banks. The economy is expected to fall into recession this year.

Israel (February 2015)

Bloomberg:

The Bank of Israel is pushing rates toward zero and considering alternative tools as it seeks to revive an economy growing at the slowest pace for five years, and halt the decline in consumer prices. Last year’s growth rate of 2.9 percent was the weakest since 2009, and the country has experienced several months of deflation, with consumer prices falling 0.5 percent in 12 months through January.

The rate cut “is a preventative measure meant to avoid a slide into a deflationary reality,” Yaniv Pagot, chief strategist at Ayalon Group Ltd. in Ramat Gan, said by phone. “Quantitative easing steps in the not so distant future cannot be discounted.”

Turkey (February 2015)

Bloomberg:

Prime Minister Ahmet Davutoglu said the reduction should have been bigger, extending the feud between the country’s politicians and technocrats that has unnerved investors.

The bank in Ankara reduced its benchmark one-week repo and overnight borrowing rates by 25 basis points each on Tuesday, to 7.50 percent and 7.25 percent respectively. It trimmed the overnight lending rate by 50 basis points to 10.75 percent, according to a statement on its website. Analysts had forecast cuts to all three rates, according to Bloomberg surveys.

The government has persistently called for Basci to lower borrowing costs to boost economic growth since the bank more than doubled the main rate in an emergency meeting in January last year, to halt a run on the currency. Basci has so far only partially unwound that increase, saying that a cautious policy stance is necessary until there is a marked improvement in the inflation outlook.

Denmark (February 2015)

Wall Street Journal

Denmark’s central bank scrambled to defend its currency peg Thursday, cutting its benchmark interest rate for the fourth time in less than three weeks.

The krone’s peg to the euro has been under strain since the European Central Bank announced a large-scale bond-buying program in January, sending the shared currency spiraling downward.

Singapore

Bloomberg/Bangkok Post

"Since the last Monetary Policy Statement in October, developments in the global and domestic inflation environment have led to a significant shift in Singapore's CPI inflation outlook for 2015," the MAS said. "MAS has assessed that it is appropriate to adjust the prevailing monetary policy stance."

The central bank guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of the band. Singapore's consumer prices fell for a second straight month in December.

Singapore will keep a "modest and gradual appreciation" in its currency policy band, the central bank said. It made no change to the width and level at which it is cantered.

"This measured adjustment to the policy stance is consistent with the more benign inflation outlook in 2015 and appropriate for ensuring medium-term price stability in the economy," the MAS said.

Has the above easing measures been about responses to ‘strong’ economic growth or to ‘slowing’ economic growth? 

Has the above easing measures been about responses to the risk of inflation (defined by media as rising consumer prices) or deflation (falling consumer prices)?

Record high stocks have spawned an ocean of misimpression that such dynamic has been about G-R-O-W-T-H and the ebbing of risk. 

But on the other hand, the rush to ease by many central banks extrapolate that these monetary institutions have seemingly been in a panic mode. Insufficient G-R-O-W-T-H has been exposing credit risks that have only been pressuring central banks to lower the cost of servicing debt through policies.

Two different responses to divergent perceptions.

Remember that the global central banks has largely been on an easing trend since 2008. And like narcotics, financial markets have become totally addicted to it.

Yet global debt has swelled by $57 trillion from 2007 to reach 286% of the global GDP in 2Q 2014 based on estimates by McKinsey Quarterly. The mainstream belief has been that debt is a free lunch

So one of this divergent perceptions will be proven wrong. Perhaps soon.