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Central banks cut interest rates
October 9th 2008
In a coordinated move to try and alleviate the global financial crisis, the world's major central banks have taken the unprecedented step of jointly cutting interest rates, with the Bank of England, the US Federal Reserve, the Bank of Canada, the European Central Bank and others cutting rates by half a percent, to 4.5%.
The concerted move to recapitalise banks was meant to demonstrate clearly the central banks' resolve to do whatever is necessary to ease the unfolding financial crisis. It is also hoped that it will encourage confidence in the £500bn rescue package for banks which the UK government is implementing.
However analysts warned that the only way to stem the meltdown of the global financial system is for the US to follow suit with a similar package as the UK one, and that some degree of bank nationalisation is the only way forward. Lowering the interest rate should be seen as just one measure among many aimed at getting banks to lend to each other again, by injecting capital and thus improving credit markets.
The move was welcomed by the Confederation of British Industry, which said it should help restore some consumer and business confidence.
The effects of the rate cuts and bank recapitalisation on the property market were likely to be seen in the mortgages sector, with an increase in the amount of mortgages available. Such a scenario would help to stimulate activity in the housing market, though it was not thought that the outlook for house prices would be affected.
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