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Fed set to halve rates; Japan, China may act too
(Agencies)
Updated: 2008-12-16 15:09 New York/Singapore - The US Federal Reserve looks set to halve interest rates close to zero on Tuesday and China signalled it may cut its rates again in a global drive to contain the worst financial crisis in 80 years.
Central bankers return to centre stage in an action packed week that started on a sour note with a rescue plan for US carmakers stuck in limbo, reverberations of an alleged multibillion financial fraud and a collapse in Japanese business sentiment.
The Federal Reserve is expected to cut its benchmark rate to 0.5 percent, its lowest in more than half a century, and to promise to dip into its toolbox for less conventional tools to pull the world's biggest economy out of recession. In Japan, where rates are already at an ultra-low 0.3 percent and the economy is possibly poised for its longest ever slump, the finance minister urged the central bank to also take unorthodox steps to ease a funding crunch faced by Japanese companies. Bank of Japan holds its policy meeting on Thursday and Friday and there is some market speculation it may cut interest rates after it reported the biggest crash in business sentiment in three decades. But the Nikkei newspaper said many within the central bank were reluctant to drive rates any lower and wanted to wait for the effects of the last cut in October, of just 0.2 percentage point, to work their way through the economy.
Zhou said on Tuesday that slowing inflation in China gave the bank room to lower borrowing costs. "Consumer prices are going down, and sometimes even faster than we think," he said. Zhou said he sees pressure to cut interest rates from now until the beginning of next year as growth slows amid a drop in exports. The global financial crisis has caused the world's fourth- largest economy to cool, "especially Chinese exports to other part of the world," Zhou said in Hong Kong, where he is attending a regional meeting of the Financial Stability Forum. "From now until the beginning of next year is full of interest-rate cut pressure." The severity of the global downturn set off by a US sub-prime mortgage market meltdown last year surprised policymakers, who have been running out of options after slashing rates to historic lows and rushing out massive stimulus plans. Among the world's top economies only China has avoided recession, but it risks a sharp slowdown that may feel like one, and the authorities in Beijing are scrambling to engineer a soft landing with a mix of massive government spending and interest rate cuts. |
