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The Bank over the world cut the rates to face the crisis





thealpha
BBC News on 2008-10-09

Quote:


Six central banks, including the Bank of England, have cut interest rates by half a percentage point in an effort to steady the faltering global economy.

No decision on UK rates had been expected until Thursday - and the move puts the interest rate at 4.5% from 5%.

The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank (ECB) trimmed its rate from 4.25% to 3.75%.

The unprecedented step failed to cheer world stock markets.

The central banks of Canada and Sweden and Switzerland all took similar action in the co-ordinated move.

China also cut its rate, but by 0.27 percentage points.

European and US initially reacted well to the news but later turned lower as investors were unconvinced that the rate cuts would really solve the financial crisis.

In New York, the main Dow Jones stock index ended down 189 points or 2% at 9,258.1 after weaving in and out of positive territory.

The last time the Bank of England cut rates in a special meeting was on 18 September 2001 - when rates came down from 5% to 4.75%.

In the UK, some mortgage lenders also immediately passed on the rate cut to borrowers - trimming their variable rates.

In other major developments:

* The UK government unveiled a package of measures aimed at rescuing the banking system which could add up to 400bn ($692bn).

* US Treasury Secretary Henry Paulson said that more financial firms were expected to fail in the US despite a $700bn government bail-out programme.
* The Federal Reserve has agreed to provide insurer American International Group with a $37.8bn loan on top of the $85bn loan given to the troubled firm last month.

* Italy also unveiled details of a banking rescue plan that could involve the government taking stakes in failing banks.

* All UK savers with accounts in the closed Icelandic internet bank Icesave were told they would get all their money back.
* The Treasury arranged for more than 3bn of UK savers' money held with Icelandic banks Kaupthing Edge and Heritable Bank to be transferred to ING Direct UK.
* Iceland's prime minister said he hoped to find a "mutually satisfactory solution" to the loss of UK Icesave deposits after Prime Minister Gordon Brown threatened to sue Iceland to recover the money.

'Arrest the slide'

Responding to the interest rate cut, UK manufacturers' group the EEF welcomed the "bold and decisive move" it hoped would "arrest the current crisis and collapse in confidence".

"Coupled with the plan to shore up the financial system today's co-ordinated moves should help arrest the potential slide into depression," said the EEF's chief economist Steve Radley.

Chief international economist at Capital Economics, Julian Jessop, said that the rate cut would "provide at least a temporary boost to confidence".

But he added: "We fear that there is still a lot more work to do.

"The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become."

He also warned that rate cuts were not a complete solution, pointing out the Fed had already cut rates from 5.25% in September last year to 2% before the latest move - action which happened "without rescuing either the financial system or the real economy."

****************************************************************************
I do think that cutting the rate may help, to a certain extent, but what is the underlyinng principle that can explain this situation?
****************************************************************************
ThePolemistis
thealpha wrote:
BBC News on 2008-10-09

Quote:


Six central banks, including the Bank of England, have cut interest rates by half a percentage point in an effort to steady the faltering global economy.

No decision on UK rates had been expected until Thursday - and the move puts the interest rate at 4.5% from 5%.

The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank (ECB) trimmed its rate from 4.25% to 3.75%.

The unprecedented step failed to cheer world stock markets.

The central banks of Canada and Sweden and Switzerland all took similar action in the co-ordinated move.

China also cut its rate, but by 0.27 percentage points.

European and US initially reacted well to the news but later turned lower as investors were unconvinced that the rate cuts would really solve the financial crisis.

In New York, the main Dow Jones stock index ended down 189 points or 2% at 9,258.1 after weaving in and out of positive territory.

The last time the Bank of England cut rates in a special meeting was on 18 September 2001 - when rates came down from 5% to 4.75%.

In the UK, some mortgage lenders also immediately passed on the rate cut to borrowers - trimming their variable rates.

In other major developments:

* The UK government unveiled a package of measures aimed at rescuing the banking system which could add up to 400bn ($692bn).

* US Treasury Secretary Henry Paulson said that more financial firms were expected to fail in the US despite a $700bn government bail-out programme.
* The Federal Reserve has agreed to provide insurer American International Group with a $37.8bn loan on top of the $85bn loan given to the troubled firm last month.

* Italy also unveiled details of a banking rescue plan that could involve the government taking stakes in failing banks.

* All UK savers with accounts in the closed Icelandic internet bank Icesave were told they would get all their money back.
* The Treasury arranged for more than 3bn of UK savers' money held with Icelandic banks Kaupthing Edge and Heritable Bank to be transferred to ING Direct UK.
* Iceland's prime minister said he hoped to find a "mutually satisfactory solution" to the loss of UK Icesave deposits after Prime Minister Gordon Brown threatened to sue Iceland to recover the money.

'Arrest the slide'

Responding to the interest rate cut, UK manufacturers' group the EEF welcomed the "bold and decisive move" it hoped would "arrest the current crisis and collapse in confidence".

"Coupled with the plan to shore up the financial system today's co-ordinated moves should help arrest the potential slide into depression," said the EEF's chief economist Steve Radley.

Chief international economist at Capital Economics, Julian Jessop, said that the rate cut would "provide at least a temporary boost to confidence".

But he added: "We fear that there is still a lot more work to do.

"The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become."

He also warned that rate cuts were not a complete solution, pointing out the Fed had already cut rates from 5.25% in September last year to 2% before the latest move - action which happened "without rescuing either the financial system or the real economy."

****************************************************************************
I do think that cutting the rate may help, to a certain extent, but what is the underlyinng principle that can explain this situation?
****************************************************************************



I think this will be a dip to the stock market. But hey,, I think it will be an excellent time to buy stock in a week or so as they are bound to go up.. And whn they do go up.... u'll be making millions....

The problem is with the banks. When they make billions, they dont share it with us. And when they makes losses of billions, they expect us (taxpayer) to bail them out.

Crazy world!!
bogger
explaining interest rates Razz

interest rates are basically a rate which banks are required to charge people who borrow from them, and are required to give to people who save with them, current account are exempt from this.

increasing the interest rate encourages more saving, and less borrowing. This decreases inflation, but can also have a negative impact on growth.

decreasing the interest rate encourages people to borrow, and to invest instead of saving. This helps to spur growth, but can also cause inflation. Thus the central banks have to ensure a careful balance.

I'd expect more interest rate cuts next month.
LumberJack
The Fed I think had it backwards over the last few months... when they were dropping interest rates rapidly a few months ago they should have increased liquidity like they have been recently... we did not have a monetary problem like we are now.

This would have allowed them have a more dramatic effect on the market. It is pretty hard to do so, when your interest rate is at 1.5%. If it was at 3%, they would have been able to have a more psychological effect on the public by a more substantial decrease.... hindsight is everything though
Variablez
A rate cut is the way out of this crisis.
deanhills
Variablez wrote:
A rate cut is the way out of this crisis.


I may have it wrong, but as far as I know, when banks cut rates it is usually a way of paving the way for printing more money and increasing liquidity. When interest rates go up, less money is available as well as less liquidity and if people are in large debt, then of course a crisis is on hand. People have been overspending, so to bale them out, the Governments are printing more money. First the US went off the gold standard, then it started to print money like crazy putting US citizens in serious debt for generations to come. Hence almost a zero interest rate for a number of years. At some or other time the debt has to be faced squarely. To lower the interest rates as short-term therapy may be good, but regrettably I only see short-term self-interest, rather than long-term self-discipline. The latter of course being essential to bale everyone out of this dilemma.
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