World central banks make historic joint rate cut
WASHINGTON (Reuters) - Central banks around the world cut interest rates on Wednesday in their first broadly coordinated policy action in history, as fears of a deep recession banished recent worries over inflation.
In an attempt to stem the worst global financial crisis since the 1930s, the central banks of the United States, the euro zone, Britain, Switzerland, Canada and Sweden all lowered official rates by a half-percentage point.
But stock markets, traumatized by cascading losses and the collapse of some of the oldest names in banking, took only mild comfort. Strains in credit markets continued unabated, begging the question of what more policy-makers could do and whether more cuts would follow.
European Central Bank President Jean-Claude Trichet hinted at this option, pledging that markets could count on central banks to "take the appropriate decisions."
The People's Bank of China, participating for the first time in a globally coordinated interest-rate move, also lowered its key rate, but by a more modest amount.
The Bank of Japan, whose rates are just 0.5 percent, did not ease but strongly supported the coordinated action.
"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," the central banks said in a joint statement.
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The Fed cut the overnight interbank federal funds rate to 1.5 percent -- the lowest since September 2004 -- from 2.0 percent. It also lowered the discount rate it charges on direct loans to banks by a half-point to 1.75 percent.
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.
China cut its key rate 27 basis points and its reserve requirements for banks by half a percentage point.
"This is the first such fully coordinated and synchronous rate cut by a number of key central banks," Morgan Stanley economists wrote in a note to clients. "This is a very important signal to markets and the public at large. Leadership was required, and leadership they showed."
The Fed and ECB lowered rates on the same day in the aftermath of the September 11 attacks, and at the time the ECB referenced the Fed's action when announcing its cut. But there was no joint statement or global dimension to the move as there was with the latest salvo on Wednesday.
U.S. Treasury Secretary Henry Paulson, speaking at a news conference, called for further collective action.
"Governments have and must continue to take individual and collective actions to provide much-needed liquidity, strengthen financial institutions through the provision of capital ... and protect the savings of our citizens," he said. Continued...
