Fed, BoE, ECB, Others Lower Rates

123jump.com Staff
08 Oct, 2008
New York City

The Fed in a coordinated move with five other central banks lowered its key lending rate. The move comes after the Fed became the lender in the commercial paper market and offering nearly $900 billion in short term lending and expanding several times lending facility this year.

[R]10:15AM New York – The Fed in coordinated action with five other central banks lowered interest rates and focused on the weakening economic activities.[/R]

Central banks around the world in a coordinated action lowered interest rate, pledged to provide liquidity and credit. The unprecedented move that involved six central banks comes after the interbank lending remains tight and rates are on the rise.

The Federal Reserve today lowered its key lending rate 0.5% to 1.5% after keeping the rate at 2% since April of this year. The Fed in the accompanying statement focused on the economic growth and expectations of falling inflation. The Fed note suggested that economic activities are likely to slow down and risks to inflation are lower than in the earlier months this year.

The Fed noted, “Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.”

After the coordinated move, the benchmark lending rates in ECB dropped to 3.75%, in Canada to 2.5%, in UK to 4.5% and in Sweden to 4.25%. Japan left its rate unchanged at 0.5% but supported the decision.

Only a day ago, Australia lowered its key rate by full one percentage point, India lowered its cash reserve ratio for banks by 0.5% and China today lowered its one-year lending rate by 0.27% and Hong Kong cut its key lending rate as well.

Banks around the world are facing liquidity crunch, falling confidence, and tight interbank lending conditions. The IMF increased its estimate of loan losses linked to the reckless lending in the U.S. to $1.4 trillion from $1.3 trillion and also forecasted a global recession in 2009.