Central Banks Slash Interest Rates

The ongoing global economic crisis has brought a major change in the global economy. It is the cause of the failure and merging of numerous large financial companies in the United States. This failure swiftly developed into a global credit crisis, depreciation and a large reduction in shipping, which resulted in wide-ranging failures in a number of European banks. Due to the continuous decrease in different stock indexes and huge cutbacks in the value of equities and commodities in the market worldwide, the world’s major central banks are endeavouring to ease the effects of the global economic crisis through interest rates cut-down.

The Bank of England lowered their interest rates by almost half to 4.5%. The U.S. Federal Reserve, central banks in Canada, the European Central Bank, Sweden and Switzerland also slashed their interest rates by 50 basis points. In addition, China cut its rates by 27 basis points. These moves were highly praised by Japan. The U.S. rates dropped by 1.5%; at the same time, Europe cut down its borrowing costs by 3.75%.

The Bank of England affirmed that the current continuing financial crisis has caused additional risk to economic growth. The Bank’s Monetary Policy Committee stated that “In the United Kingdom, the supply of credit to households and businesses is clearly tightening further as banks seek to adjust their balance sheet”. A major increase in the capital of the banking sector would be required, because the interest alone is not enough to sort out the existing problems in financial markets. The urging of the government to recapitalise the major U.K. banks would be a great move.