Were Central Banks right to lower rates?

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Were Central Banks right to lower rates?

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The question is whether central banks were right in lowering rates so quickly in response to market reaction to the possibility of the COVID19 ("C19") outbreak being a damaging effect on the economy?

They were applying the principles of the previous financial crash to the current crisis, thinking that acting big from the outset will result in a quashing or reduction of substantial troughs in the market. Realistically the financial crisis was due to many other reasons, for which many debates have been had, therefore I shall not enter into that discussion today, ones that have no bearing on where we are today.

What the Central Banks ought to have done is pretty simple, they should have acted in concert by reducing the rates not individually, this would have lessened the volatility of currency trading. It is important to note that not all economies will be hit equally by this C19. Developed countries with exceptionally high standards where life expectancy is greater will be hit worse as they just have too great a weight on the population pyramid vs healthcare capacity, the countries which we class as developing with lower life expectancies will see much less impact as the population is generally quite healthy vis-a-vis the developed nations. When you have 20-30% of your population over the age of retirement you are much more likely to see a greater impact - regardless of whether they contribute to the economy or not. Developed counties are much less used to death than developing and therefore this will have a great social impact on the mental wellbeing of that economy.

So let's revert to the original question, were the CB's right to lower the rates? Yes they were but not in the way that they did - this should have been a structured process over the period of the lockdown. This means that they have less ammo now throughout the whole lockdown so they will have to resort to more and more unused/expected/extreme practices to kickstart the various economies.

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