“If cutting rates is cool, consider me Miles Davis”
- Joshua M Brown
- July 5th, 2012
Everyone’s cutting their interest and lending rates! It’s the cooooooool thing to do!
Big time action from three of the world’s key central banks, makes you glad to be in risk-on mode but also a bit troubled in terms of what the hell these bankers are seeing out there…
First up, the Bank of England, which is pouring a bit more petrol on the fire with a little QE action, from the New York Times:
LONDON — The Bank of England stepped up its economic stimulus Thursday, announcing an increased bond-buying program designed to jolt the struggling British economy out of a double-dip recession.
The central bank left Britain’s benchmark interest rate unchanged at a record low of 0.5 percent, apparently concluding that quantitative easing, which involves buying government bonds to increase available capital, was a more effective measure to lift the economy.
The £50 billion, or $78 billion, in additional stimulus announced Thursday comes on top of £325 billion already pumped into the economy by the Bank of England over the past several years.
Not to be outdone, China jumped into the mix as well, from Reuters via NYT:
BEIJING (Reuters) – China’s central bank cut interest rates for the second time in two months on Thursday to bolster an economy widely expected to record its sixth successive slide in growth in April-June.
China announced the rate cut as the Bank of England launched a third round of monetary stimulus and the European Central Bank cuts its main interest rate. Policymakers globally are trying to combat the impact of the euro area debt crisis on the world economy.
China’s benchmark lending rates will be lowered by 31 basis points to 6 percent, and deposit rates will be cut by 25 basis points to 3 percent, the People’s Bank of China said in a statement on its website.
And then the big one, the ECB, took rates to their lowest level in the central bank’s history, from the WSJ:
The European Central Bank cut its main interest rate to a historic low of 0.75% Thursday, as expected, offering a degree of relief to the euro-zone’s faltering economy amid signs that inflationary pressures are fading.
The 0.25 percentage point cut—the ECB’s first since December—was forecast by more than two-thirds of the analysts polled by Dow Jones Newswires, and takes rates below the 1% low that was hit in the wake of Lehman Brothers’ 2008 collapse.
Although euro-zone inflation held steady at 2.4% in June, somewhat above the ECB’s target of just below 2%, price pressures have eased steadily in recent months to a 16-month low, even as economic data increasingly point to the risk of a double-dip recession.
Peer pressure or just good ol’ fashioned macro panic? Who cares, there’s water in the pool, we can swim.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.