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Central Bank Cuts Interest Rates (Eruptions Market Report 9-7-23)

Poland’s central bank delivered a surprisingly steep interest rate cut in a bid to boost a slowing economy less than six weeks before a tightly-contested election, weakening the zloty and hammering banking stocks.

The decision to lower the benchmark by three quarters of a percentage point — the most since the fallout from the great financial crisis in 2009 — to 6% caught economists off guard. Most had predicted a quarter point reduction.

When you study the history of the central banks across the world, you notice that they often work in tandem, engaging in periods of quantitative easing (QE) and quantitative tightening (QT) collectively across time.

The central bank of Poland slashing interest rates by 75 bps could be an early sign of a central bank pivot coming on the horizon.

We have covered this quite a few times in this newsletter over the past year. The central banks have printed so much money over the last 3-4 years that they have driven themselves in between a rock and a hard place.

On the one hand, they can continue to hike interest rates while choking out the life of economies across the world. On the other, they can begin slashing interest rates and allow hyperinflation of most currencies to begin, including the strongest currencies in the world like the Euro, GPB, and US Dollar.

The only solution to this problem is to get out of the weak money and into the strong money.

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