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Markets reacting to global rate cut
Wed, Oct 8 2008, 11:58 GMT
by Marina Schiaffino
Stock markets worldwide closed yesterday with important losses, despite the coordinate cut, while the IMF warned about a the spreading financial crisis turning into a deeper than expected recession. It also praised interest rate cuts, as it has warned about the worsening of the global economic outlook, which threatens to push several advanced economies into recession.
Markets were astonished yesterday when the US federal Reserve, European Central Bank, Bank of England, Bank of Canada, Swiss National Bank and the Swedish Central Bank announced a surprise a coordinated rate cut in order to support economies after the growing financial crisis.
The driving of this movement was the Fed’s Monetary Policy Committee that voted unanimously to cut its target Rate by 50 basis points to 1.5%. The Decision was followed by the rest of the Central Banks
The Bank of Japan expressed its strong support to those policy actions, according to the fed’s statement, although they won't cut rates for the moment.
During the Asian session three more banks have followed this measure: The Bank of Korea and Taiwan’s Central Bank of China cut their interest rates by 25bp, leaving the benchmark rate at 5% and 3.25%. The Hong Kong Monetary Authority lowered it 50bp, from 2.5% to 2%.
The Fed justified the decision on an attempt to support households and businesses: "Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."
Tatsuya Kawanishi, junior advisor at FXstreet.com thinks that "Wall Street's answer to the coordinate rate cuts was no confidence towards banks. Instability on stock and currency markets still remains. The Western stock markets keep sliding after the 10 banks coordinated cuts, while gold becomes a safe haven, hitting the monthly high at 910.64." About the currencies market, he states that "the USD/JPY went down 98.87 support yesterday. The BoJ might consider to cut its benchmark rates if the JPY gets more appreciated." The future looks quite uncertain, because "financial institutions have made net worth inadequate. The Fed might need to take some further steps such as buying more commercial papers or injecting public funds into financial institutions in order to diminish global markets' instability."
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| Central Bank | Next Meeting | Current Interest Rate | Previous Interest Rate |
| Federal Reserve | Oct 29 2008 | 1.5% | 2.0% |
| European Central Bank | Nov 06 2008 | 3.75% | 4.25% |
| Bank of England | Nov 11 2008 | 4.5% | 5.0% |
| Bank of Canada | Oct 21 2008 | 2.5% | 3.0% |
| Swiss National Bank | Dec 11 2008 | 2.25% | 2.75% |
| PBoC | - | 6.93% | 7.20% |
| Sveriges Riksbank | - | 4.25% | 4.75% |
| Bank of Korea | - | 5% | 5.25% |
| Hong Kong Monetary Authority | - | 2% | 2.5% |
| Taiwan’s Central Bank of China | - | 3.25% | 3.5% |
Related Information
- Daily FX Report - Central banks around the globe cutting interest rates to stabilize the world wide economy by Varengold Wertpapierhandelsbank AG
- Market Session Snap-Shot - Asian Session - Asian Stocks Rise as four regional central banks cut interest rates by ACM - Advanced Currency Markets
- Forex Analysis on Majors - FOMC, ECB, BOE, SNB, BOC and PBOC Took Actions for Strengthening Euro and Pound by Forex Ltd
- Daily Global Commentary - Coordinated Move of Central Banks Necessary But Temporary Panacea by Northern Trust
- Asia Market Update - Risk appetite rebounds as central banks step up their coordnation by TradeTheNews.com
- Forex Trading Strategies - Unprecedented coordinated rate cut by six major central banks by Saxo Bank
- Morning Report - Global central banks coordinate policy and ease by 50bp by Westpac Institutional Bank
- FX Commentary - G10: Coordinated rate cuts by Danske Bank A/S
- Gold Investments Market Update - Emergency Coordinated Central Bank Rate Cuts to See Gold Soar by Gold and Silver Investments Limited
- Yen falls, high-yielding FX up on world c.bank action (Thomson Financial News)
- Fall in Europe after rate cuts, eyes on Libor (Thomson Financial News)
- Bonds slump as central banks stir appetite for risk (Thomson Financial News)
- Banks must cut costs as bad loans rise-Solbes (Thomson Financial News)
- Some calm returns after steep losses, rate cuts (Thomson Financial News)
- Coordinate rate cut does not calm stock markets (FXstreet.com)
Fed
- US: FedWatch - FOMC Policy Action October 8 by BBVA Bancomer
- Daily Market Briefing - US Dollar: Does the Federal Reserve Have Any Other Tricks Up Their Sleeve? by FXCM
- European and US summary - Fed's Bernanke Tips Hat to Rate Cut by Forexnews.com
- Yen Benefits Most On Unwind, Dlr Lower On Fed Cut (Dow Jones)
- US FOMC cuts rates with other central banks (Thomson Financial News)
- Fed statement on its 50 bps cut in Fed Funds rate (Thomson Financial News)
- Fed leads global coordinated rate cut, eases by 1/2 point (Thomson Financial News)
ECB
- ECB Bulletin: Prices have eased in the Euro Area, uncertainty remains high (FXstreet.com)
- Banks ease use of ECB overnight facilities as rates change (Thomson Financial News)
- French Fin Min Repeats Government Won't Allow Banks To Fail (Dow Jones)
- European Commission declines comment on rate cuts (Thomson Financial News)
- Merkel says rate cut should help restore confidence (Thomson Financial News)
- Sarkozy hails joint rate cut (Thomson Financial News)
- ECB Cuts Refi Rate To 3.75% From 4.25% (Dow Jones)
- ECB's Weber-central banks to do all needed (Thomson Financial News)
BoE
- Banks' demand for BoE dollar loans improves (Thomson Financial News)
- British banks to pass on rate cut to borrowers (Thomson Financial News)
- BoE cancels Thursday's MPC meeting after rate cut (Thomson Financial News)
- BOE Cuts 50 BPs In First Coordinated Move Since 2001 (Dow Jones)
- BOE-MPC continues to balance two risks, downside to growth vs upside to (Thomson Financial New)
- UK House Prices Will Continue Slipping Despite Rate Cut -RICS (Dow Jones)
- BoE makes emergency rate cut of 50 basis points (Thomson Financial News)
SNB
- SNB statement on interest rate cut (Thomson Financial News)
- SNB cuts interest rates in joint c'bank action (Thomson Financial News)
- SNB says slowdown more severe than prior forecast (Thomson Financial News)
BOC
- Canada says IMF meeting to help co-ordinate efforts (Thomson Financial News)
- Canada's Flaherty vows to protect financial system (Thomson Financial News)
- Canada Morning: C$ Dn As Initial Post-Rate Cut Rally Fades (Dow Jones)
- Bank of Canada lowers key rate to 2.50 pct (Thomson Financial News)
- Bank of Canada statement on rate cut (Thomson Financial News)
Riksbank
PBOC
- PBOC To Strengthen International Cooperation (Dow Jones)
- China Rate Cut Speaks To Domestic Pressures (Dow Jones)
- China cuts interest rates and required reserves (Thomson Financial News)
Published on Thu, Oct 9 2008, 14:25 GMT
Archive
- Markets reacting to global rate cut
Published On Wed, Oct 8 2008, 11:58 GMT - Fed's interventions in the markets
Published On Thu, Aug 23 2007, 15:04 GMT - Global Liquidity Crisis
Published On Fri, Aug 10 2007, 10:14 GMT - World equity markets sell-off
Published On Wed, Feb 28 2007, 14:12 GMT - U.S. Housing Bubble
Published On Tue, Nov 28 2006, 09:58 GMT
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