UK Halts Rate Cut, US Cuts Ignite Global Cash Grab

The US dollar's interest rate cut has led to a chaotic situation worldwide. Why do some central banks rush to cut interest rates, while others refrain from doing so? Isn't the logic of lowering interest rates and increasing liquidity the same?

A more important question arises: will our yuan's interest rate be cut or not? Upon careful examination of these issues, the differences are indeed significant, but the underlying logic is the same: the global scramble for money has begun.

Let's look at the global central banks' reactions to the US dollar's interest rate cut. First, a group of central banks immediately followed suit by cutting their interest rates.

The Central Bank of Kuwait cut interest rates by 25 basis points; the Central Bank of Bahrain reduced the overnight deposit rate by 50 basis points; the Central Bank of the United Arab Emirates also reduced the overnight deposit rate by 50 basis points; the Central Bank of Qatar reduced the deposit rate by 55 basis points; additionally, our Hong Kong also cut by 50 basis points.

However, there is also a group of central banks that go against the trend and announce that they will not cut interest rates.

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The most typical examples are the United Kingdom, Japan, and the Nordic country of Norway.

The UK's decision not to cut interest rates is interestingly reported by foreign media, stating that after the Federal Reserve announced a 50 basis point interest rate cut, the Bank of England decided not to cut interest rates for the time being.

On September 19th, Beijing time, the Bank of England announced that it would maintain the benchmark interest rate at 5% and reduce the holdings of government bonds by 100 billion pounds over the next 12 months.

Maintaining a high interest rate is a tightening policy, and reducing the holdings of government bonds is also a tightening policy. Does this mean that the UK is determined to continue with its tightening monetary policy?What does the Bank of England have to say about this decision?

 

Bank of England Governor Bailey stated that it should be possible to gradually reduce interest rates over time, and it is crucial to keep inflation low, caution is needed, and interest rates should not be lowered too quickly or by too much.

Now inflation has become a catch-all excuse; whenever there is a reluctance to lower interest rates, one can simply pull out this justification. Over the past two years, the Federal Reserve has taught the whole world this trick.

Is the UK truly concerned about inflation? Let's look at three things, and we'll understand almost everything.

The first thing is that the Bank of England just announced a 25 basis point rate cut in August.

This is their first rate cut since 2020, and it was only by 25 basis points, showing great caution.

The second thing is that the UK's inflation situation is relatively stable, but core inflation has shown some rebound.

The latest statistical data released by the UK's Office for National Statistics shows that the UK's inflation rate in August was 2.2%, but core inflation rose by 3.6% year-on-year, higher than July's 3.3% and also higher than the expected 3.5%, which indicates a slight rebound.The third matter, the British economy is relatively weak this year.

In the first half of this year, the UK's GDP grew by 1.3%, while the Bank of England predicted an average growth of 0.3% for the third and fourth quarters. In the past four months, the British economy did not grow for three months.

Therefore, the UK is very contradictory, with economic growth almost stagnant, but inflation has not come down, showing signs of stagflation.

At present, the economy of the European continent across the sea is also very poor, but inflation has been successfully reduced to the 2% range. Why can't the UK's inflation be reduced?

This matter is actually very simple, purely because they are too close to the United States.

So you will find that the trend of UK inflation is very similar to that of the United States. The US inflation rate in August was 2.5%, and the UK was 2.2%. The core inflation in the United States rebounded slightly in August, and the core inflation in the UK also rebounded, both around 3.5%.

This is the same problem as Japan. When the US economy has a cold, the economies of the UK and Japan must follow suit and sneeze.

Is that all there is to it? Did the British decide not to lower interest rates because of inflation? Since the UK is the same as Japan, we will reveal the answer together with Japan later.

Let's look at Japan again. They raised interest rates once in March and again in July.Why is Japan raising interest rates against the trend? This country is too unique; we have discussed it several times before, so I won't repeat it today.

In a nutshell, the Japanese hope to take advantage of the US dollar's interest rate cuts and domestic inflation to promote the return of overseas capital to invest in the domestic market through interest rate hikes, in an attempt to pull the Japanese economy out of the quagmire it has been stuck in for decades.

The Japanese might be a bit naive; it's not that easy.

The situation in Norway is simpler; the current interest rate is 4.5%. The Central Bank of Norway has stated that it will not cut interest rates until the end of this year. This interest rate is not too high; the economies of the Nordic countries are all like that, always lukewarm, and they generally do not like to engage in stimulus measures.

Our central bank is the most unique; I won't elaborate on where it is unique, but the key issue is whether to follow the US dollar's interest rate cuts?

At present, we may not be in a hurry to cut interest rates. First, there is not much room for interest rate cuts. Second, the US dollar's interest rate cuts have only just begun and are far from being in place. At this time, we must not be too hasty and must be able to hold steady.

Additionally, our considerations align with those of the UK and Japan to some extent.

What considerations are these? This is what we are going to talk about: the global money grab war.

The US dollar entering a rate-cutting cycle means that the global money grab war has begun.Americans, of course, do not wish for a rapid exodus of dollar capital, nor do they desire it to flow to our shores. Consequently, they will employ every conceivable tactic to prevent this, including controlling the pace of interest rate cuts and managing expectations to regulate the speed of capital flight.

Naturally, the act of seizing wealth is a matter for major powers; smaller nations do not have the standing to engage in such activities.

Given that the flight of the dollar from the United States is primarily destined for economies that are both lucrative and safer, with larger scales,

it follows that when the dollar undergoes an interest rate cut, smaller nations are quite eager to follow suit with their own rate cuts. In contrast, we, the United Kingdom, and Japan are not in a hurry to reduce interest rates. Firstly, we take this opportunity to narrow the interest rate gap with the dollar, and secondly, we wait to see the Federal Reserve's pace of interest rate cuts this time around.

This is one of the stories that will unfold as the dollar enters a cycle of interest rate reductions.