As Investors Seek Cover, Central Banks Slash Rates

Seeking to loosen credit, central banks plan another round of cuts

By Clay Dillow, Newser Staff

Posted Oct 28, 2008 10:30 AM CDT

(Newser) – Central banks worldwide are slashing interest rates, attempting to stem the bleeding in financial markets as investors dump holdings, credit remains tight, and currencies spasm in value, the Washington Post reports. The Federal Reserve is set to cut rates for the second time in as many weeks tomorrow, while the EU plans to do the same next week. South Korea cut three-fourths of a point yesterday.

Normally cutting rates makes credit cheaper and spurs lending, but lately banks are reluctant to lend regardless of rates. The crisis is spilling into currency markets, with a alarming surge in the Japanese yen causing G-7 ministers to huddle over possible ways to correct its value. Banks are deploying multiple options to stabilize markets, including rate cuts, stimulus packages, and loan programs to unlock credit.

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South Korean President Lee Myung-bak on the large screens, delivers a speech on the financial crisis to the nation at the National Assembly in Seoul, South Korea. (AP Photo/ Lee Jin-man)

European Central Bank President Jean-Claude Trichet said Monday Oct. 27, 2008 a cut in interest rates next month is "a possibility" because of lower inflationary pressure. (AP Photo/Yves Logghe)

Federal Reserve Chairman Ben Bernanke, speaks to the National Association for Business Economics, Tuesday, Oct. 7, 2008, in Washington. (AP Photo/Manuel Balce Ceneta)

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As their currencies go down, the debt in dollars for emerging economies is going up substantially, and that is very much like what happened 10 years ago in the Asian financial crisis.
- C. Fred Bergsten, director of the Peterson Institute for International Economics

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As Investors Seek Cover, Central Banks Slash Rates