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Global: Coordinated central bank action

Wed, Oct 8 2008, 14:18 GMT
by Peter Possing Andersen, Arne Lohmann Rasmussen, Signe Roed-Frederiksen, Allan von Mehren, Søren Dijohn, Pär Magnusson, Flemming J. Nielsen

Danske Bank A/S

Overview: Today at 13:00 the Federal Reserve, the European Central Bank, Bank of England, the Swiss Na-tional Bank, Riksbanken in Sweden and Bank of Canada in a coordinated action cut key policy rates by 50bp. The People's Bank of China lowered the lending rate by 27bp. The Bank of Japan did not participate in the coordinated action but said it would stay in close contact with other central banks. The coordinated action is a strong signal that the central banks are now working together to fight the financial crisis and support the global economy. We expect further rate cuts from all participating central banks over the coming year as they work to fight the economic downturn. Should the crisis continue, we could see further coordinated action as the global authorities are committed to fight the crisis with all means.

Details: In a press comment the ECB argues for a coordinated rate cut by stating that "the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price sta-bility. Some easing of global monetary conditions is therefore warranted". We expect the ECB to cut rates further from here as the economy continues to look weak. Furthermore inflation and inflation expectations are coming down. This gives the ECB room to manoeuvre. We are looking for the ECB to cut rates in De-cember 2008 and again in February and April 2009, each time by 25bp, meaning that the ECB policy rate will be 3.00% by summer 2009.

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Published on  Wed, Oct 8 2008, 14:23 GMT