Central banks worldwide cut interest rates

Wednesday, October 8, 2008

In an effort to reduce the effect of the ongoing financial crisis, six central banks worldwide have reduced their interest rates by 0.5% in an unexpected move which took place today. The banks involved in the deal are the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank.

“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,” said the banks in a joint statement. “Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. 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. “

“Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.”

Japan expressed support for the move, although it did not cut its own interest rate by 0.5% as that would mean bringing its interest rate down to 0% from 0.5%.

The US interest rate was lowered to 1.5% as part of the move, while the UK rate was lowered to 4.5%. The European rate was lowered to 3.75%.

The new rate of the Swiss National Bank is 2.5%, while Sveriges Riksbank, the Swedish central bank, lowered its rate to 4.25%.