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    World central banks cut base rate to stem crisis in a coordinated action

    HotNewsTurkey Staff
    08.10.2008 - 14:06 | Son Güncelleme:

    The U.S. Federal Reserve led a global round of emergency interest rate cuts on Wednesday in an effort to contain the worst financial crisis since the1930s. (UPDATED)

    The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank (ECB) and the central banks in Britain, Canada, Sweden and Switzerland also cut rates in the coordinated response which analysts had been demanding. 

     

    "Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months," the Fed said in a statement.

     

    "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."

    The Wednesday cuts come as markets in Asia and Europe sink amid waning confidence, Britain steps in to support banks, and Russia closes its main stock market for two days.

    "Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets," the banks said at a joint statement. 

    ECB'S STATEMENT
    The ECB also cut by a half-point to 3.75 percent as did the Bank of England, taking its rate to 4.5 percent.

    Noting that "inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices," the ECB said it had also reduced its other two key rates by the same amount.

    The ECB’s marginal lending rate was cut to 4.75 percent and the interest rate on the ECB’s deposit facility fell to 2.75 percent.

    French President Nicolas Sarkozy on Wednesday called for coordinated action between governments and central banks as the only way to confront an "unprecedented financial storm."

    OTHER BANKS
    Bank of England cuts key lending rate by half point to 4.50 percent.

    China and Sweden also cut their interest rates. China cut its interest rates for second time in less than one month as Sweden cut rate by half a percent to 4.25 percent.

    The Chinese Central Bank's announcement Wednesday said the government is increasing the pool of money available for lending by reducing the amount banks must hold in reserve.

     

    Switzerland’s central bank on Wednesday joined other major central banks in a coordinated action to cut interest rates, as they seek to stimulate the economy which has stalled on the financial crisis.

      

    BOJ NOT TO PARTICIPATE

    The Bank of Japan said Wednesday it supported coordinated rate cuts by the world’s central banks but was not participating as its benchmark rate is already low.

     

    The Japanese central bank said it "expresses its strong support" for the rate cuts by counterparts in the United States, the euro zone, Britain, Canada, Sweden and Switzerland.

     

    But it said that in Japan, "interest rates remain very low and monetary conditions remain accommodative."

     

    Japan has kept its benchmark lending rate at 0.5 percent, the lowest among major economies, since February 2007.

     

    MARKETS UP
    Global stock markets surged back into positive territory on Wednesday after major central banks slashed interest rates to tackle a worsening financial crisis.

     

    Although the move came after the close of another calamitous day of losses in the Far East, heavy downturns on European markets were rapidly wiped out although analysts said it was too early to breathe a sigh of relief.

     

    "We are not out of the woods yet," City Index market strategist Joshua Raymond told to AFP. "We will have to see whether this has any long lasting effect on confidence." London was up 0.62 percent after the Bank of England slashed interest rates.

     

    The London Stock Exchange had earlier plunged 7 percent after the government announced a 50-billion-pound part-nationalization of the country's main banks as part of an emergency bailout package worth a total of 500 billion pounds.

     

    Following the rate reductions, Paris advanced 0.20 percent, wiping out heavy losses, though Frankfurt remained in the red, down by 0.99 percent in afternoon deals.  

     

    Wall Street has turned around sharply with stock index futures shooting higher in response to an emergency half-point interest rate cut by the Federal Reserve.

    Dow Jones industrials futures surged 168, or 1.78 percent, to 9,706.00 after being down 140. Standard & Poor’s 500 index futures rose 29.20, or 2.82 percent, to 1,035.00.

     

     

     

     

     

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