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Dec. 4 (Bloomberg) — The European Central Bank cut interest rates the most in its 10-year history after the region’s economy suffered the first recession since the introduction of the euro.

ECB policy makers meeting in Brussels lowered the benchmark lending rate to 2.5 percent from 3.25 percent. Only 17 of 56 economists in a Bloomberg News survey correctly forecast the move, with 35 predicting a cut of 50 basis points and 4 calling for a full percentage-point reduction.

The ECB’s decision came after the Bank of England today cut its key rate by one percentage point to 2 percent, the lowest level since 1951, and Sweden’s Riksbank pared rates the most in 16 years. The Federal Reserve’s benchmark rate now matches a five- decade low as central banks rush to respond to the global recession.

“This is better than 50 basis points, but they are still late coming to the party,” said Laurent Bilke, an economist at Nomura International in London who used to work as a forecaster at the ECB. “The economy is in deep recession now, so rates should come down as quickly as possible.”

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Tags: ECB, Economy, IMF, Rate Cut, Recession

China Property Slump Threatens Global Economy as Growth Slows

Dec. 2 (Bloomberg) — House prices in Shanghai, Shenzhen and Guangzhou are plunging, and the global economy may grind almost to a halt next year because of it.

Construction of homes, offices and factories fell at least 16.6 percent in October after rising 32.5 percent a year earlier, according to Macquarie Securities Ltd. That’s squeezing an economy already slowed by recessions in the U.S., Japan and Europe that have cut demand for exports. Building is the biggest driver of China’s expansion, contributing a quarter of fixed- asset investment and employing 77 million people.

The central bank cut its key interest rate by the most in 11 years last week and the government said “forceful” measures were needed to arrest a faster-than-expected economic decline. Without more rate cuts and government spending, China is unlikely to contribute the 60 percent of global growth Merrill Lynch & Co. forecasts for next year, further slowing the world economy.

“China is now at the heart of the global slowdown,” said Jim Walker, chief economist at Asianomics Ltd., an economic advisory firm in Hong Kong. “It means that global growth is probably going to be dragged down close to zero next year.”

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Tags: China, Economy, GDP, housing, housing market, Hu Jintao, Rate Cut, Recession

Australia’s interest rate was cut by a surprise 100 basis points today, taking the cash rate to the lowest it has been in seven years

The fourth cut in as many months, a full 25 basis points larger than economists predicted, is seen as further proof that Australia will struggle to avoid recession over the next 12 months.

“The economy is on a knife-edge,” said Macquarie economist Brian Redican.

The Reserve Bank cited the state of the global economy and a big downturn in domestic demand for the cut to 4.25%, with Glenn Stevens, the governor of the RBA, saying that ti was time to take monetary policy to an expansionist setting.

Analysts warned that the interest rate cut would not stop the economy from slowing further in line with the downturn in the US and China and predicted further rate cuts in 2009.

“This will help, but the headwinds coming off-shore are so large that the Australian economy will slow aggressivley next year,” Stephen Halmarck, a senior analyst for Citgroup told The Times. “Data out of the US and especially China has surprised everyone.

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Tags: Australia, Economy, Politics, Rate Cut, Recession

The People’s Bank of China cut interest rates by more than 1pc point as the economy crumbles and millions of jobs are predicted to go ahead of Christmas.

Factory workers surround a damaged police car during a protest outside Kai Da toy factory in Dongguan, China. Photo:REUTERS

The move came just one day after the World Bank predicted that China would grow by 7.5pc next year. The level of growth may appear robust by Western standards, but it would represent the slowest economic expansion in China for the last two decades.

It is also perilously close to the 7pc minimum level of growth that Chinese economists believe is necessary in order to create enough jobs for the 6m university graduates who will enter the jobs market next year.

Factory workers smash an office during a protest at Kai Da toy factory in Dongguan, China. Photo: REUTERS

It is the fourth interest rate cut from the Chinese central bank in the last ten weeks as the government desperately battles an evident economic collapse. “China is out to save itself here,” said Patrick Bennett, an analyst with Societe Generale in Hong Kong.

The PBOC reduced its main borrowing rate by 1.08pc points to 5.58pc, the biggest one-off cut since the Asian Financial Crisis in 1997.

In recent weeks, a series of riots across central and southern China have flowered as disgruntled employees aired their grievances at the downturn.

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Tags: China, Economy, financial crisis, Government, People's Bank of China, Politics, Rate Cut, riots, Unemployment

Fed sharply lowers economic forecasts for this year, 2009; signals another rate cut coming

WASHINGTON (AP) — The Federal Reserve on Wednesday sharply lowered its projections for economic activity this year and next, and signaled that additional interest rate reductions may be needed to help combat the worst financial crisis to jolt the country in more than a half-century.

With the economy forecast to lose traction, or even jolt into reverse, unemployment will move higher, the Fed predicted.

Facing the likelihood of “significant weakness” in the economy, some Fed officials suggested “additional policy easing could well be appropriate at future meetings,” according to documents from the Fed’s most recent closed-door deliberations on interest rate policy at the end of October.

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Tags: Economy, Fed, Federal Reserve, financial crisis, GDP, Inflation, Politics, Rate Cut, Unemployment

The perilous state of the UK economy was exposed as the Bank of England’s Monetary Policy Committee made an unprecedented 1.5 percentage point cut in interest rates.

Winston Churchill meets the Queen in 1955. Photo: PA

The shock vote brought interest rates down to 3pc for the first time since January 1955, when Winston Churchill was prime minister. Economists forecast that the cut could pave the way for further reductions - with some claiming that rates could hit a historic low of 1pc.

Thursday’s move was interpreted as a desperate attempt to protect the UK economy from a severe recession.

“There has been a very marked deterioration in the outlook for economic activity at home and abroad,” said the MPC in an explanatory statement, adding that the threat of inflation was now receding.

It warned that after the most serious crisis in the global banking sector for almost a century, households and businesses were likely to find it difficult to obtain credit “for some time.” The MPC counted falling share prices, a sharp reduction in UK output, and a squeeze on household budgets among a nasty cocktail of circumstances that have combined to hit both businesses and consumers hard.

The MPC’s decision came amid a raft of gloomy news and data emerged. Figures from Halifax, the UK’s biggest mortgage lender, showed that house prices have fallen by 15pc over the past 12 months.

It was the sharpest drop since the survey began in 1983 and brought the average house price down to £168,176 in October, compared with almost £200,000 in the same month last year.

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Tags: Bank of England, Credit Crisis, credit crunch, ECB, Economy, financial crisis, housing market, IMF, Politics, Rate Cut, Recession, U.K.

Alistair Darling summoned the chief executives of Britain’s biggest banks to Downing Street today to demand that they immediately pass on the Bank of England’s interest rate cut to their customers.

Treasury sources confirmed to The Times that the Chancellor told the heads of all Britain’s big high street lenders - including HSBC, Barclays, Lloyds TSB, HBOS Nationwide and Abbey - to implement rate cuts immediately.

Yesterday, the Bank of England slashed interest rates by 1.5 per cent to 3 per cent, the lowest level in 54 years, and today, the shock reduction helped to ease the strain in nervous money markets.

Libor, which is the rate at which banks lend to each other and is key for pricing mortgages, fell by more than one per cent from 5.561 per cent to 4.496 per cent.

However, the figure remains almost 1.5 per cent higher than the official interest rate.

The spread between the Bank of England’s borrowing cost and the rate that banks charge to borrow money over a three-month period - a key measure in the wholesale money market - is the widest since October 22. The day before, Mervyn King, the Governor of the Bank of England, publicly acknowledged for the first time that a recession in the UK is now likely.

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Tags: Alistair Darling, Bank of England, Banks, Barclays, Economy, Government, HBoS, HSBC, Lloyds TSB, mortgage crisis, Mortgages, Politics, Rate Cut, RBS, taxpayers, U.K.

The Federal Open Market Committee’s half-point cut in its Federal Funds target does not address the leverage and credit issues in the banking system.

Indeed, by penalizing savers it worsens the economy’s supply/demand imbalance for funding. The cut doesn’t solve short-term problems and worsens long-term inflation worries.

The banking crisis was not caused by over-high interest rates. Its two main causes were large and unknown housing-related and other credit losses and an urgent need for banks to reduce their leverage.

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Tags: Economy, Fed, Federal Reserve, Inflation, Politics, Rate Cut, U.S.

Oct. 29 (Bloomberg) — The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era.

“Downside risks to growth remain,” the Federal Open Market Committee said today in a statement in Washington. “Recent policy actions, including today’s rate reduction, coordinated interest-rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.”

Central bankers worldwide are trying to revive credit and stop a self-reinforcing downturn in consumer spending and bank lending from triggering a global recession. Today’s decision follows the half-point reduction the Fed coordinated with the European Central Bank and four other central banks on Oct. 8. Borrowing costs were pared today in Norway and China.

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Tags: Ben Bernanke, China, Commodities, ECB, Economy, Fed, Federal Reserve, financial crisis, Henry Paulson, Inflation, Politics, Rate Cut, Recession, Standard & Poor's, Stock Market, Treasury, U.S., Wall Street

Sept. 1 (Bloomberg) — The European Central Bank will probably keep interest rates at a seven-year high this week, and may even threaten to raise them, at the risk of prolonging the economic slump.

All but one of 47 economists surveyed by Bloomberg News predict the Frankfurt-based central bank will leave the benchmark rate at 4.25 percent on Sept. 4 and only five expect a cut this year, even after the region’s economy contracted in the second quarter.

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Tags: ECB, Economy, Inflation, Rate Cut, Recession, Trichet