Three central banks take action in sign of alarm

Thu Jul 5, 2012 3:29pm EDT
 
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BEIJING/FRANKFURT (Reuters) - China, the euro zone and Britain loosened monetary policy in the space of less than an hour on Thursday, signaling a growing level of alarm about the world economy, although suggestions of coordinated action were played down.

Of the three, the surprise move was from Beijing which lowered its lending rate by 31 basis points to 6 percent following an interest rate cut just a month ago that also came out of the blue.

The European Central Bank cut rates to a record low 0.75 percent following a dire run of economic data. But it steered clear of bolder moves such as reviving its government bond-buying program or flooding banks with more long-term liquidity.

Still, a Reuters poll found the ECB is expected to follow the rate cut with more steps to help the region's economy in coming months.

The Bank of England, whose rates are already at a record low 0.5 percent, said it would restart its printing presses and buy 50 billion pounds ($78 billion) of assets with newly created money to help the economy out of recession.

"It is a surprise that they are moving so quickly. It shows that policymakers' concerns about the global economy have only grown," Mark Williams, an economist at Capital Economics in London, said of the People's Bank of China's action.

A raft of Chinese data is due next week, including second-quarter gross domestic product that officials may know to be poor, he said. But they may also be trying to foster suggestions of acting in concert.

"Policymakers may have felt that cutting rates on the day that the ECB (did) the same would deliver a bigger impact, encouraging talk of a coordinated response to the slowdown in the global economy," Williams said. "Again, though, this might simply underline the seriousness of the downside risks."

"NO COORDINATION"   Continued...

 
Arrangement of various world currencies including Chinese Yuan, Japanese Yen, US Dollar, Euro, British Pound, Swiss Franc are pictured in Warsaw January 26, 2011. REUTERS/Kacper Pempel