Rate cuts everywhere!

Major central banks slash rates in extraordinary move to ease crisis

Globe and Mail Update

Wednesday, October 08, 2008

OTTAWA — Major central banks took the extraordinary step of deeply cutting interest rates in a coordinated move on Wednesday, a development that serves to underline the deterioration of the world’s banking system and the threatened global recession.

Central banks in Canada, the United States, Britain, the European Union, Switzerland and Norway cut their key lending rates by half a percentage point. Only Japan, among the major central banks, opted out given that its rates are already at rock bottom.

The move came after a sharp overnight drop in Asian markets and U.S. stock futures that threatened to spark another North American selloff on Wednesday. The Dow Jones Industrial Average lost 508 points Tuesday, bringing down markets globally. Britain also was rattled by a deepening banking crisis yesterday, forcing the government to announce a $80-billion bailout package.

The move gave some comfort to worried economists, but they warned the extraordinary action is not enough to end the deepening financial crisis.

“Today’s co-ordinated half-point cuts from all the major central banks … will provide at least a temporary boost to confidence, but we fear there is still a lot more work to do,” said economists at London-based Capital Economics. “For a start, the fact that the central banks have had to take such extreme measures underlines how bad market conditions have become.”

The Bank of Canada lowered its key rate to 2.5 per cent, from 3 per cent, but tried to assure the public that Canada’s banks were still solid.

“The intensification of the global financial crisis is having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly,” the Bank of Canada said in a statement it issued alongside the joint statement with other countries.

“As a result of these developments, credit conditions in Canada have tightened significantly, despite the relative health of our financial institutions.”

The central bank warned that a U.S. recession and weakness in key trading partners is hurting Canada’s exports. Plus, the domestic side of the economy is no longer on fire as commodity prices drop and the Canadian dollar slides, the bank noted.

More to come

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