Video courtesy of Telegraph
According to Reuters, The European Central Bank (ECB), Bank of England (BOE) and The Swedish central bank (Riksbanken) join party to make an unexpectedly rate cut on Thursday to shore up economies across Europe in the face of ever-bleaker financial news.
Sweden’s central bank cut interest rates by an unprecedented 175 basis points to 2 per cent, underlining the dramatic impact of the global economic downturn on the country’s export-based economy.
The steep cut was almost twice the 100 basis points the market had expected and came ahead of rate cuts by the European Central Bank and the Bank of England.
The Bank of England’s monetary policy committee to cut interest rates on Thursday by a full percentage point to 2 per cent, the lowest level for nearly four decades, to tackle the economic downturn.
The last time interest rates were at 2 per cent was in the final days of George VI’s reign in 1951 and the previous time lending costs were cut from 3 to 2 per cent was October 26 1939, after Britain entered the second world war.
While The ECB slashed 75 points to 2.50 percent as the eurozone's biggest ever cut. The aggressive move, which most economists had forecast, comes as a raft of data shows the state of the economy is worsening by the day. Earlier today, Halifax, the country's largest lender said that house prices had fallen by 2.6 per cent in the last month alone, and have now lost more than £37,000 from their peak last summer.
Two important manufacturing and services surveys this week have shown factories and businesses are feeling the squeeze, while The Pier furniture chain became the latest retailer to collapse into administration.
Europe stock markets declined after the announcement of the Central Banks move. The Central banks’ aggressive steps may be able to halt the current financial markets turmoil in the short term but not in the long term.
Here is from Reuters:
……………………France meanwhile unveiled a 26 billion euro ($32.9 billion) stimulus plan for its faltering economy as unemployment rose, the latest European country to open state coffers to fight the downturn.
With the United States, Europe and Japan now in recession and other countries sliding that way, data showed a mounting pattern of job losses and corporate woes across the globe.
The rate cuts are aimed at making credit cheaper and so boost spending, but banks will need to overcome their reluctance to lend for the measure to take hold and savers will suffer.
Analysts had widely expected the move following business indicators suggesting Britain's economy could be heading for an even deeper recession than most people had predicted.
But it disappointed some investors who had begun to speculate on a bigger easing following Sweden's action and European shares and bund futures pared Thursday's earlier gains.
Most analysts had predicted a 50 basis point cut by the ECB, but with inflation plummeting and the economy of the 15-nation eurozone sinking deeper into recession, it opted for a bigger slice.
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Sources :
- Reuters: Europeans make big rate cuts to fight recession, December 4, 2008 10:31am EST
- Telegraph: Interest rates cut: Bank of England cuts rates from 3 per cent to 2 per cent, December 4, 2008 2:02PM GMT
- FT.com: Sweden slashes rates to 2%, December 4 2008 13:31
- FT.com: Bank of England cuts rates to 2%, December 4 2008 13:44
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