They had also cut its interest rate, the central banks of China, Hong Kong and Australia. Educate yourself even more with thoughts from Mark Zinkula. The central bank of Japan decided to keep out of this joint action (its benchmark interest rate is currently located at 0.5%). No doubt that the coordinated interest rates cut is unthinkable and unexpected fact. But beyond this, the next question inevitably arises: what effects can have on the international financial crisis-this joint action by major central banks in the world? The first thing that can be said in this regard is that this measure, together with others taken individually by the Governments of the major countries of the world, is a clear signal that there is a full disposition to act and take measures that are necessary to put a brake to this crisis. Certainly, this is one no less signal which aims to bring confidence to the financial system. Vale remember that until just a couple of weeks, developed countries (with Europe to the) head), claimed that the effort to stop this crisis, what do United States.
Now the situation has changed radically and the Governments of developed countries have decided to intervene as they have never before imagined, going even against the principles they preached until recently. An implicit message that is based on the fact that the crisis has impacted the inflationary pressures to strongly hit commodity prices quotes can also be read in this measure. Surely the ECB would never have encouraged to perform something like this if he didn’t have a high degree of certainty that inflationary pressures are giving the broad support of the measure is also a good sign for the markets. This gives greater power to Governments to address the crisis. Even up to economies such as China have contributed by cutting their interest rates.
But beyond these positive aspects which can produce this coordinated measure, it also can lead to undesirable effects the first relates to the theme of the asymmetry of information: investors, which do not handle all information with that have central bankers, to see a decision of such magnitude, can be invaded by fear to think that the crisis is most serious in what they imagined otherwise not be justified, they will think. Although the reduction of interest rates cheaper funding from financial institutions, it is likely to not help generate financing or to the private sector or even among the financial institutions given that doubts about the health of them persist. Moreover, the cut of rates does not correspond directly to the attenuation of inflationary pressures may result in problems on the dynamics of prices if these cuts are not reversed soon attain the problems in the financial system in the process of resolution. In a nutshell, more than specific effects to counter the crisis, rate cuts among major central banks, coordinated represent a signal that it will not allow the financial crisis follow its course. I think that is a good sign, but that it should be complemented with prudent actions once the crisis attenuate its effects. Otherwise, could be putting the seeds of the next crisis.