Friday, 6 March 2009

ECB cuts, BoE moves to quantitative easing

The ECB cut interest rates by half a percentage point on Thursday, with possibly more to come. Bloomberg reports:

European Central Bank President Jean- Claude Trichet indicated officials will cut the benchmark interest rate further after reducing it to a record low of 1.5 percent today to combat a worsening recession.

“We didn’t decide ex-ante that this was the lowest point that we could attain,” Trichet said during a press conference in Frankfurt after the ECB lowered its main rate by half a percentage point. Policy makers still haven’t decided on using additional policy tools to stimulate growth, Trichet said.

The economy of the 16 euro nations is shrinking faster than the ECB expected just three months ago as the global slowdown curbs export demand and companies lay off workers. Trichet said today the central bank has cut its economic forecasts again and expects inflation to stay “well below” its 2 percent ceiling this year and next.

The BoE also cut interest rates by 50 basis points on Thursday and is moving to quantitative easing. Reuters reports:

The Bank of England pledged to go on a 75 billion pound bond-buying shopping spree on Thursday in an unprecedented attempt to get the recession-hit economy growing again as it also cut interest rates to new record low.

Governor Mervyn King said the rate cut to 0.5 percent, the sixth in as many months, would probably be the last and the central bank was now switching to injecting money directly into the economy by buying assets, mostly gilts.

Elsewhere on Thursday, interest rates were also cut in Denmark, which cut its benchmark rate by three quarters of a percentage point to 2.25 percent, and the Philippines, which cuts its benchmark rate by 25 basis points to 4.75 percent.

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