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Markets reacting to global rate cut

Wed, Oct 8 2008, 11:58 GMT
by Marina Schiaffino

FXstreet.com


Central BanksStock 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."

Central Banks Overview
Central BankNext MeetingCurrent Interest RatePrevious Interest Rate
Federal ReserveOct 29 20081.5%2.0%
European Central BankNov 06 20083.75%4.25%
Bank of EnglandNov 11 20084.5%5.0%
Bank of CanadaOct 21 20082.5%3.0%
Swiss National BankDec 11 20082.25%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

Fed

ECB

BoE

SNB

BOC

Riksbank

PBOC

Published on  Thu, Oct 9 2008, 14:25 GMT


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