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When central banks act together, you know things are really bad. They were certainly bad in October 2008, when central banks acted together to reduce short-term interest rates. Here’s how the October 9 issue of the Wall Street Journal reported the story:

The world’s central banks launched a large coordinated attack against the widening global financial crisis, lowering short-term interest rates in unison.

The emergency action, which involved the Fed, the European Central Bank, the Bank of England and others, is a sign that fears that the financial crisis could cripple the global economy are spreading rapidly.

Central banks in the U.S., the euro zone, the U.K., Canada, Sweden and Switzerland each cut short-term interest rates on Wednesday by a half percentage point, noting that “the recent intensification of the financial crisis has augmented the downside risks to growth.” Acting on its own, the People’s Bank of China also cut rates, as did Australia’s central bank, a day earlier.

Three years later, coordinated action is again deemed necessary. According to the Fed, the purpose of today’s coordinated action is to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”

As in 2008, the Chinese eased monetary policy simultaneously with the coordinated action of other central banks:

China’s central bank will cut the portion of deposits that banks must hold in reserve for the first time in three years, in a sign of Beijing’s concern over slowing growth in the country and in key export markets like Europe.

On Wednesday evening, the People’s Bank of China said it would reduce the required reserve ratio for all banks by 0.5 percentage points, starting from December 5.

Central bank statements:

As this post is being written, equity markets are up sharply. It should be kept in mind that, subsequent to the October 2008 central bank action, stocks plunged for another six months before bottoming on March 9, 2009.

This entry was posted by Marc Schulman on November 30, 2011 at 11:41 am under Bank of England, Bank of Japan, Central Banks, China, European Central Bank, Swiss National Bank, United States Federal Reserve. You can leave a response, or trackback from your own site. Follow any responses to this entry through the RSS 2.0 feed.

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