Thursday, October 9, 2008

Worldwide rates cut coordination or worldwide conspiracy?

Worldwide central bankers coordination or worldwide conspiracy?

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.


OMG, even the most hawkish ECB also gave in. What the hell is going on? Stop cursing them, ain’t they do us a favor preventing the second Great Depression. Shall we thank them?

"What we are battling here is trust, confidence, perception," said Peter McCorry, senior equity trader at Keefe Bruyette & Woods. "In that battle, what we've used to a great extent has been ad hoc solutions to situations as they arise," he added. "The rate cuts ... announce this is an international, coordinated effort to bolster financial markets. We're going to take what's wrong, provide the level of confidence and liquidity to get us through. The question I have is what the hell took them so long…. Every act now just by its nature can be seen as an act of desperation."


China is also announced its intention to drop rate.

China's central bank may step up to help stimulate the economy by cutting interest rates and allowing companies to issue medium- term notes, economists said.

The key reason for implementing monetary and macroeconomic policies is to support domestic consumption growth and financial market stability, as well as maintain a stable yuan, People's Bank of China Governor Zhou Xiaochuan said.

China may cut interest rates as many as five times by the end of next year and will boost spending to limit the effect of financial market turmoil on economic growth.

The central bank will cut the cost of borrowing by 27 basis points each time, reducing the one-year lending rate to as little as 5.85 percent next year from 7.2 percent now, Morgan Stanley economist Wang Qing said.

Shenyin Wenguo predicts the first rate cut as early as next month.


Boys and girls, while my prayer is answered a rebound could happen but I’m going to bet against them long-term – inflation is going to haunt us – we are going to pay for it.

No comments: