The news from Saudi Arabia boosts the chance of additional monetary policy support from central banks in anticipation of higher energy costs that are effectively a tax on consumers, David Mann, chief economist for Standard Chartered Plc in Singapore, told Bloomberg Television.
“We would argue this adds to the reasons why we are going to see more dovish surprises from central banks over the next few weeks,” Mann said.
The Federal Reserve is poised to cut interest rates for a second straight meeting this week and its gathering will be followed by the Bank of Japan, which is under pressure from investors to loosen monetary policy further. Central banks of Brazil, South Africa, Norway, Switzerland and the U.K. will also decide policy this week.
U.S. President Donald Trump used the occasion to restate his attacks on the Fed and his demand for a large reduction in borrowing costs. “The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries,” he tweeted Monday. “And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus!”
In a hint of how emerging economy officials may react, Philippine central bank Governor Benjamin Diokno said the price shock will figure into policy makers’ discussions when they meet next week to decide interest rates. Bank Indonesia has a policy meeting scheduled Thursday, with the majority of economists surveyed before the Saudi attack predicting a 25 basis-point rate cut.
“A significant spike in oil prices is the last thing the world economy needs now,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd.
This article was provided by Bloomberg News.