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Just how dovish will central banks turn this year?

27 0 1

In the middle of November last year, the yield on one-year Chinese government debt fell below its American counterpart for the first time ever, according to data from Bloomberg, dropping to 2.5 per cent as Beijing’s shift towards more growth-supportive measures gathered pace. The yield gap between the two countries’ 10-year bonds had also narrowed sharply, dropping to just 30 basis points as the divergence between Chinese and American monetary policy gained momentum.

It was not just the Federal Reserve and the People’s Bank of China that were parting ways. A succession of US interest rate increases, coupled with expectations of further tightening this year as America’s economy powered ahead, contrasted starkly with a slowdown in growth in the euro zone. By early November, the spread between US and German 10-year bond yields had increased to nearly 2.8 percentage points, its widest level in almost three decades.

Divergences in monetary policy were also becoming more pronounced across emerging markets. While some economies, such as Brazil and Colombia, reduced borrowing costs to help stimulate growth, others, notably Indonesia and the Czech Republic, joined the Fed in raising rates with the aim of maintaining financial stability.

Yet, since the beginning of this year, a synchronised global slowdown, driven by a sharp deceleration in China and Europe, has taken root. The publication last Tuesday of survey data on global manufacturing and service-sector output,........

© South China Morning Post