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Six central banks cut interest rates

(China Daily)
Updated: 2008-10-09 08:02

The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression.

The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 percentage point.

Yesterday's decision follows a global meltdown that sent US stock indexes heading for their biggest annual decline since 1937; Japan's benchmark yesterday had the worst drop in two decades.

Pedestrians walk past the Bank of England in London. Bloomberg News

Policy-makers are also aiming to unfreeze credit markets after the premium on the three-month London interbank offered rate over the Fed's main rate doubled in two weeks to a record.

"Central banks of the world have finally woken up to the gravity of the current situation," Charles Diebel, head of European rates strategy at Nomura International Plc in London, wrote in a note. "It is potentially not the last we will see of central bank activity particularly in Europe as the macro situation is still weakening dramatically."

Rate levels

The Fed reduced its benchmark rate to 1.5 percent. The ECB's main rate is now 3.75 percent; Canada's fell to 2.5 percent; the UK's rate dropped to 4.5 percent; and Sweden's rate declined to 4.25 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.

"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," according to a joint statement by the central banks. "Some easing of global monetary conditions is therefore warranted."

Global policy-makers are reducing rates as economies weaken around the world.

The International Monetary Fund said the global economy is heading for a recession in 2009 and increased its estimate of losses from the financial crisis to $1.4 trillion.

Agencies

(China Daily 10/09/2008 page17)