Central Banks are Expected to Keep Cutting Rates to Spur Growth in a Weak Global Economy

“Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland.

As Group of Seven finance chiefs gather in the U.K. today with monetary policy on their agenda, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains.

“Most central banks in our coverage universe still have a bias to ease,” Morgan Stanley economists led by London-based Joachim Fels said in a report to clients yesterday. “Given this disposition, it doesn’t take much in terms of downside surprises in growth or inflation to tip the balance for more central banks to pull the trigger for more easing.”

South Korea’s rate cut yesterday was the 511th reduction worldwide since June 2007, according to Bank of America Corp.’s tally, done before Vietnam and Sri Lanka today said they’re lowering their policy rates. While the liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth.

‘Best Friends’

“Central banks are our best friends not because they like markets, but because they can only get to their macro objectives by going through the markets,” Mohamed El-Erian, chief executive officer at Pacific Investment Management Co. in Newport Beach, California, said in a May 8 telephone interview. “The hope is that improving fundamentals will validate what central banks have done.” …”

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