Major world central banks announced co-ordinated interest rate cuts early Wednesday morning. Among them, the Federal Reserve and the European Central Bank cut rates 50 basis points, bringing their rates to 1.50% and 3.75% respectively. The Bank of Canada also cut rates 50 basis points to 2.50%.
The Bank of England, Swiss National Bank and Sveriges Riksbank also participated in the rate reductions, reducing their key overnight lending rates by 50bp.
The Bank of Japan did not participate in the rate action.
"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," said a joint statement released by the banks.
"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 statement continued. "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."
The banks also said the intensification of the global financial crisis is "having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly."
Equity markets shot up, but quickly retreated on the news, with Dow futures going from 9400 to 9797 before falling back down to 9620, and S&P 500 futures picking up 43 points to 1043 before falling back to 1020 in the 20 minutes following the announcement.
German 10-year Bund futures fell to session lows of 117.05, while British 10-year Gilt futures fell 30 ticks to 113.81. December Euribor was up 25 ticks to 95.785 after the announcement.
Yields on ten-year U.S. government bonds went from 3.445% to 3.534%, while two year yields went from 1.397% to 1.4844% before retracing to 1.435% in the 25 minutes following the 7 a.m. EDT announcement.
The Eurostoxx went from 2420 to 2512 and retracted to 2454, and the FTSE 100 rose from 4477 to 4654 before falling to 4563, in the 25 or so minutes following the releases.
By Stephen Huebl and edited by Sarah Sussman
©CEP News Ltd. 2008