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Three central banks take action

Thursday, July 05, 2012 - 02:47

July 5 - A trio of the world's central banks, in Europe, Britain and China loosened their monetary policy in the space of under an hour on Thursday, signalling a growing level of alarm about the world economy, although suggestions of coordinated action were played down. Joanna Partridge reports

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Trying to support a flagging economy. As many expected, the European Central Bank cut euro zone interest rates by a quarter to a record low of 0.75 percent. But ECB President Mario Draghi avoided buying government bonds or flooding banks with fresh liquidity. SOUNDBITE: Mario Draghi, President of the European Central Bank, saying (English): "Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on confidence and sentiment. We have implemented both standard and non-standard monetary policy measures. This combination of measures has supported the transmission of our monetary policy. All our non-standard monetary policy measures are temporary in nature." The interest rate cut isn't seen as a solution for the euro zone's problems. But the ECB showed it is ready to help out by also reducing its deposit rate to zero. That could encourage banks to lend to each other, rather than just dumping funds back at the ECB each night. European shares initially climbed higher on news of the interest rate cut. But they soon pared those gains once Draghi said the euro zone would only recover gradually, says trader Robert Halver. SOUNDBITE: Robert Halver, Trader with Baader Bank, saying (German): "The ECB's interest rate cut is not necessarily beneficial to the banks in order for them to offer more credit, but the symbolic power is considerable. Just after the EU summit the ECB made it clear that it will not take blame for the collapse of the euro zone and I am convinced that today this is a signal that the ECB in the second half of the year will drown the problems of the banks and the real economy with liquidity." In the UK, the Bank of England launched a third round of quantitative easing. It's pumping a further 50 billion pounds into the economy . China's central bank has also cut its interest rate for the second time in two months. It's looking to boost its economy, says David Page from Lloyds Bank WBM. SOUNDBITE: David Page, Senior Economist, Lloyds Bank WBM, saying (English): "This clearly marks a worsening in the international economies and not just a domestic issue. We do expect a continued softening but I think you know there are some signs, particularly with the softening coming through with oil prices that hopefully the international economies, particularly China which is already showing some signs of extra lending, but also hopefully the United States should show some kind of acceleration towards the year end and that can only help the European economies including the UK." The three central banks played down suggestions of co-ordinated action. But while the euro zone crisis remains unresolved further stimulus is likely Joanna Partridge, Reuters

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Three central banks take action

Thursday, July 05, 2012 - 02:47