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World Central Banks Cut Base Rate to Stem Crisis

Surfersvillage Global Surf News, 8 October, 2008 : - - The U.S. Federal Reserve led a global round of emergency interest rate cuts on Wednesday to shore up confidence in markets shaken by the world financial crisis. 

The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5%. China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in the coordinated response which analysts had been demanding. 

In a joint statement, the banks said, "Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets."

"Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability," the statement continued. "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."

The banks also said the intensification of the global financial crisis is "having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly."  

The ECB also cut by a half-point to 3.75% as did the Bank of England, taking its rate to 4.5%. Noting that "inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices," the ECB said it had also reduced its other two key rates by the same amount.

The ECB’s marginal lending rate was cut to 4.75% and the interest rate on the ECB’s deposit facility fell to 2.75%. The Bank of Canada also cut rates 50 basis points to 2.50%.
 
The Bank of Japan said Wednesday it supported coordinated rate cuts by the worlds central banks but was not participating as its benchmark rate is already low. China and Sweden also cut their interest rates. China cut its interest rates for second time in less than one month as Sweden cut rate by half a percent to 4.25%.

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