Global central banks went on the offensive against the faltering world economy, cutting interest rates and increasing bond buying as the recent round of international stimulus gathers pace.
In a 45-minute span, the European Central Bank and People’s Bank of China cut their benchmark borrowing costs, while the Bank of England raised the size of its asset-purchase program. They acted two weeks after the Federal Reserve expanded a program lengthening the maturity of bonds it holds and Chairman Ben S. Bernanke indicated more measures will be taken if needed.
Within a minute of that decision, the People’s Bank of China cut its key interest rate for the second time in a month and allowed banks to offer bigger discounts on their own lending costs. The one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow. Banks can offer loans of as much as 30 percent less than benchmark rates.
The world’s largest emerging market is acting more aggressively to promote growth that may have decelerated for a sixth quarter. Officials moved after two manufacturing indexes fell in June and ahead of a report on second-quarter gross domestic product, due on July 13.
At 1:45 p.m. in Frankfurt, the ECB also cut its main rate by 25 basis points to a record low of 0.75 percent and said it will no longer pay anything on overnight deposits as it tries to prevent the sovereign debt turmoil from driving the 17-nation euro economy into recession. Both actions were anticipated by economists.
While President Mario Draghi has questioned the economic impact of lower interest rates, they could make it easier for banks to borrow and lend as well as build on the confidence boost euro-area governments delivered last week when they took measures toward a deeper economic union.
The central banks of Australia, the Czech Republic, Kazakhstan, Vietnam and Israel also cut rates in June, while the Swiss National Bank is buying euros to defend its franc ceiling.
Forcing central bankers’ hands is Europe’s debt crisis, which has caused the weakest patch of global growth since the end of the 2009 recession. All but three of the 26 developed economies monitored by JPMorgan will see inflation undershooting their central banks’ targets by the end of the year, according to New York-based economist Joseph Lupton.