euro|topics - Central banks lower their prime rate

Main focus of Thursday, October 9, 2008

Central banks lower their prime rate

In the continuing global financial crisis, the world's leading central banks acted together on Wednesday to lower key interest rates. With this first joint action since September 11, 2001, the banks are seeking to avert panic on the stock markets and a global recession. The European press welcomes the move but points out that it is not a panacea for the world's economic woes.

Cinco Días - Spain

The business newspaper Cinco Días hails the concerted action of lowering the key interest rate as a positive step, but warns that miracles are not to be expected in the short term: "An unusual step like that decided on by decision-makers from all over the world yesterday is a brave sign that underlines the gravity of the problem. However, we would be mistaken to believe that lowering the key interest rate - even if it is done in such a spectacular manner - can lead to an immediate improvement. It will take time for the measures that have been adopted in the past few weeks ... to take effect. ... At any rate, the international decision-makers - be it under the auspices of the G8 or the International Monetary Fund (IMF) - must now get to work on implementing a radical reform of the global financial architecture that will prevent a repetition of such scenarios of economic collapse and paralysis." (09/10/2008)

The Irish Times - Ireland

The Irish Times comments on the concerted action by the central banks: "The central banks in their joint statement recognised that as global economic activity weakens, recession has replaced inflation as the greatest threat. ... And the recent decline in energy and commodity prices has greatly eased inflationary pressures. Accordingly, lower interest rates represent the right policy response as economic conditions deteriorate. ... The co-ordinated rate cuts represent an attempt to boost market confidence at a time of financial turmoil. ... Hopefully, yesterday's co-ordinated response by the world's central banks suggests they may have begun to get the measure of the huge challenge they face. A global financial crisis requires a global response and may require further co-ordinated interest rate cuts to avert a 1930s-style catastrophe." (09/10/2008)

Frankfurter Allgemeine Zeitung - Germany

The European Central Bank has dealt better with the financial crisis than the US Federal Reserve, writes the conservative Frankfurter Allgemeine Zeitung, commenting that the cut in the prime rate can be read in two ways: "It could be the start of an inflationary policy. In such a scenario the state would put itself hopelessly in debt to rescue the financial sector. Inflation would then devalue these debts either gradually or at a fast rate. On the other hand, economic prospects are now so bad that inflation could be the least of our worries for the foreseeable future. ... Until now the European Central Bank has acted more competently and less frantically than the Federal Reserve. The decision to cut interest rates was probably not met with great enthusiasm at the ECB. But apart from the state of emergency on the money markets there are also other good reasons making this the right time for such a move." (09/10/2008)

La Repubblica - Italy

The left-liberal daily La Repubblica sees the cut in prime rates as a feckless act of desperation. Commenting that the stock markets have failed to respond positively to the move for fear of an impending recession, the paper continues: "After frantic deliberations, the heads of government have decided on a step the likes of which we haven't seen since September 2001 when the world stared in disbelief at the carnage of the Twin Towers. But this act of desperation has fallen on deaf ears. ... It seems clear that the measures taken by the banks are insufficient to address both the financial crisis and recession. For the men at the International Monetary Fund the hour seems to have struck to accompany money manoeuvres with injections of public funds into the real economy. The next dossier to be dealt with by Western governments may well be an incentive package for stimulating the economy." (09/10/2008)

» To the complete press review of Thursday, October 9, 2008

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