Wednesday, October 8, 2008
Central Banks cut Interest Rates
Six central banks, including the Bank of England, have cut interest rates by half a percentage point in an effort to steady the faltering global economy. No decision on UK rates had been expected until Thursday - and the move puts the interest rate at 4.5% from 5%. The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank (ECB) trimmed its rate from 4.25% to 3.75%. The unprecedented step failed to cheer world stock markets. The central banks of Canada and Sweden and Switzerland all took similar action in the co-ordinated move. China also cut its rate, but by 0.27 percentage points.
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Generally, the first monetary policy that people often think of to spur up the economy is to cut interest rate. However, looking at what is happening, i don't think Fed's cut rates at this point will leave much impacts. Bernanke explicitly expressed the Fed's intention to cut rates, and still, the Dow was only able to rise a bit before continuing to drop again. We once read a paper comparing US economy with Japanese economy. Would we EVER get to the zero interest rates?
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