Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

European Historic Interest Rate Cuts Suggest Dismal Economic Outlook

Interest-Rates / Euro-Zone Dec 05, 2008 - 04:18 AM GMT

By: Victoria_Marklew

Interest-Rates Best Financial Markets Analysis ArticleThe Bank of England (BoE), the European Central Bank (ECB), and Sweden's Riksbank all slashed their policy interest rates Thursday morning, and all cited the same reasons - that demand conditions have deteriorated markedly, and that inflation is likely to undershoot their respective medium-term targets. Even after the drama of this morning's moves, rates are likely to go lower in 2009, particularly in the Euro-zone.

The Riksbank led off the day with the most aggressive move, slashing its repo rate a whopping 175bps to 2.0%. Only three months ago the Swedish bank was fretting about inflation and hiked its policy rate 25bps to 4.75%. Since then, the world has changed. As the Riksbank put it this morning, there has been an "unexpectedly rapid and clear deterioration in economic activity since October." The repo rate has been lower in recent years - at 1.50% in the second half of 2005 - but today's move was the biggest interest rate shift in Sweden since the repo rate was introduced in 1994, and the largest policy cut since September 1992, when the then-marginal rate was slashed by 450bps in the midst of a financial crisis. The bank said it expected the repo rate to remain at 2.0% through 2009, but if current inflation and growth trends continue, further easing is likely in the first half of next year.

Chart 1

Next to announce was the BoE, which lopped 100bps off its base rate, taking it to 2.0%. Again, the headline writers have rushed to make the historical comparisons: The last time rates were this low was back in 1951; at 2.0%, the policy rate is now effectively equal to its lowest since the BoE was founded in 1694; the last time the bank cut from 3.0% to 2.0% was October 1939 as WW2 was getting underway. In its subsequent statement, the bank emphasized that the economic downturn has gathered pace and that demand is now so weak there is a "substantial risk" of undershooting the 2.0% CPI inflation target. It also warned that "further measures" might be needed to return lending to normal levels.

The minutes of today's meeting will be released December 17, and may give some sense of whether the policy makers envisage even lower rates in 2009. For now, the comment about "further measures" suggests the bank is deeply concerned about renewed problems in the interbank market.

Chart 2

After these dramatic moves, the ECB's 75bp reduction in its refi rate was almost bound to disappoint, even though it was the largest easing in the bank's ten-year history and came on top of two previous 50bp cuts. In his subsequent press briefing, Governor Trichet noted that the reduction was a consensus - i.e., not unanimous, implying that some members are still hesitant about the effectiveness of marked easing.

Trichet also spoke of "exceptional uncertainty," the recent intensification and broadening of market tensions, and the likelihood that domestic demand will be "very sluggish" in coming quarters. And, he noted that the ECB staff now project real GDP growth of around 1.0% in 2008, falling to between zero and -1.0% in 2009, with growth risks to the downside. Although the Governor would not be drawn on the outlook for rates next year, a negative growth forecast all-but guarantees further easing in Q1 2009.

Chart 3

By Victoria Marklew
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Victoria Marklew is Vice President and International Economist at The Northern Trust Company, Chicago. She joined the Bank in 1991, and works in the Economic Research Department, where she assesses country lending and investment risk, focusing in particular on Asia. Ms. Marklew has a B.A. degree from the University of London, an M.Sc. from the London School of Economics, and a Ph.D. in Political Economy from the University of Pennsylvania. She is the author of Cash, Crisis, and Corporate Governance: The Role of National Financial Systems in Industrial Restructuring (University of Michigan Press, 1995).

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Victoria Marklew Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in