World’s Central Banks Cut Interest Rates

Posted by Reading Time: 2 minutes

Oct. 9 – The world’s central banks cut short-term interest rates almost simultaneously in an effort to deal with the worsening global financial crisis.

The central banks in the United States, the Euro zone, Britain, Brazil, Canada, Australia, Sweden and Switzerland cut short-term interest rates by a half percentage point, noting that “the recent intensification of the financial crisis has augmented the downside risks to growth,” reports the Wall Street Journal.

The Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank’s 21-member Governing Council agreed to slice its rate by half a point to 3.75 percent from 4.25 percent.

On Wednesday, China lowered benchmark deposit and lending rates by 0.27 percentage points in addition to decreasing the reserve requirement ratio, or proportion of money commercial banks must set aside in reserve, by half a percentage point beginning Oct. 15.

China’s State Council also said it would abolish the 5 percent individual income tax on interest on savings to help increase domestic demand.

“This was mainly out of concerns over an economic slowdown,” said Ba Shusong, deputy chief of the Finance Research Institute under the Development Research Center of the State Council told Xinhua. He said, “The rate cut was expected as the world was faced with a cycle of interest rate cuts. ”

“China’s participation in this seemingly coordinated rate cut is encouraging given its importance to the global economy,” said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong told Bloomberg. “China is becoming more responsible as an involved stakeholder.”

Today, the central banks of Taiwan, Hong Kong, and South Korea followed suit and cut interest rates.

The Bank of Japan said it supported the coordinated rate cuts but declined to decrease its own rates saying that its 0.5 percent lending rate was already low and that its economy was contracting.

“It’s appropriate for each nation to make a judgment based on its own economy and prices,” BOJ Governor Masaaki Shirakawa told the media.

Photo courtesy of Allured.