Fed, ECB, BOE, China Cut Interest Rates as Credit Crisis Hammers Economies

Fed, ECB, Central Banks Cut Rates in Coordinated Move (Update1)

By Scott Lanman

Oct. 8 (Bloomberg) -- The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an emergency coordinated bid to ease the economic effects of the financial crisis.

The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 percentage point.

``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,'' according to a joint statement by the central banks. ``Some easing of global monetary conditions is therefore warranted.''

The Fed's decision brought its benchmark rate to 1.5 percent. The ECB's main rate is now 3.75 percent; Canada's fell to 2.5 percent; the U.K.'s rate dropped to 4.5 percent; and Sweden's rate declined to 4.25 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.

The Fed's Open Market Committee, which voted unanimously for the move, said in its statement that ``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.''

The Fed also cut its rate on direct loans to banks, the so- called discount rate, by a half point to 1.75 percent.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net

Last Updated: October 8, 2008 07:23

Dollar Falls Versus Euro on Joint Rate Cuts by Central Banks

By Ye Xie

Oct. 8 (Bloomberg) -- The dollar declined against the euro and the yen after global central banks made joint cuts in borrowing costs.

``Central banks are very keen to turn things around,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. ``It should support risk appetite and yen crosses.''

The dollar dropped 0.5 percent to $1.3653 per euro at 7:14 a.m. in New York, from $1.3588 yesterday. The U.S. currency fell 1.3 percent to 100.12 yen, from 101.47. The euro declined 1.2 percent to 136.21 yen, from 137.89.

The Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 percent, the central bank in a statement. The European Central Bank and the central banks of the U.K., Canada, Sweden and Switzerland are also reducing rates, the Fed said.

Fed Chairman Ben S. Bernanke said yesterday that the Fed ``will need to consider whether the current stance of policy remains appropriate.'' Before his comments in a speech in Washington, the U.S. central bank said it would set up a special vehicle to buy commercial paper and help revive the corporate-debt market.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

Last Updated: October 8, 2008 07:16 EDT