Central banks provide liquidity
European stocks added to their gains and U.S. stock index futures surged after central banks around the world moved a few moments ago to provide additional liquidity to a financial system that is beginning to seize up. The Bank of Canada, U.S. Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Swiss National Bank agreed to reduce the interest rate on U.S. dollar liquidity swap lines by 50 basis points and extend their authorization through Feb. 1, 2013. In short, that means the banks are providing cheaper money for longer. In its accompanying statement, the Bank of Canada said that the coordinated actions are meant to "provide liquidity support to the global financial system. The purpose of these actions 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."
Earlier this week, the OECD warned that even Canada ? yes, even Canada ? may have to cut rates if things in Europe worsen any further. In other words, central banks are being compelled to stimulate growth whether they want to or not, which is a position none of them appreciate much. This morning, let's talk about the specifics of the coordinated central bank action and the PBOC decision but we'll need to broaden the conversation quickly to include new expectations for quantitative easing in the U.S. and rate cuts in Canada. Will Canadians see lower borrowing costs before year-end?
The chase by Marty Cej
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