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Central banks act to spur economy
- China and Europe cut lending rates

July 5: In the span of less than an hour today, China’s central bank and the European Central Bank cut interest rates and the Bank of England stepped up its economic stimulus programme.

While the moves were not coordinated, they emphasise the concern financial officials have about a global economic slowdown and highlight the role central banks are playing in seeking to bolster growth.

China’s central bank unexpectedly cut regulated bank lending rates by nearly a third of a percentage point and made a rule change that could reduce borrowing rates for companies with good credit by an additional three-fifths of a percentage point.

Just four weeks earlier, the central bank, the People’s Bank of China, announced a similar rate reduction and rule change.

In Frankfurt, the European Central Bank cut its benchmark interest rate to its lowest level ever in what may be its most aggressive move yet to unblock the flow of credit and prevent further deterioration of the eurozone crisis.

Most analysts expected a cut, but its scale appeared to disappoint investors looking for a more aggressive move. The major stock indexes in France, Germany and Italy all fell sharply after the move.

The ECB cut its benchmark rate to 0.75 per cent from 1 per cent, which was once regarded as the lower bound on the official rate. With interest rates now close to zero, the bank and its president, Mario Draghi, will have a dwindling selection of conventional monetary policy tools they can use to combat the crisis.

In London, the Bank of England stepped up its economic stimulus, announcing an increased bond-buying programme intended 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 per cent.

 
 
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