China, ECB Cut Rates; Markets Show Mixed Reaction
The Bank of England, the People's Bank of China and the European Central Bank all took accommodative actions on Thursday. Markets were mixed on the news.
In an anticipated move, the Bank of England maintained its official rate at 0.5 percent. In addition, the BoE voted for a new round of quantitative easing, agreeing to pump another $78 billion into the economy. The bank said its actions were spurred by a combination of tight credit conditions and heightened Euro area tensions.
“Without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term,” said the BoE.
Less expected was the move from the People's Bank of China (China's central banking authority). The PBoC moved to cut its benchmark lending rate by 31 basis points, to 6 percent. Benchmark deposit rates were also cut to 3 percent, down by 25 basis points. Floors for the lending rate, the Bank said, were now 70 percent of benchmark rates, compared to 80 percent previously. The action was not widely expected, as less than one month has passed since China's central banking authority last moved to cut rates.
The quantitative easing was continued by the European Central Bank, which announced that it had lowered its main refinancing rate to 0.75% from 1 percent. Deposit rates have also been reduced to zero from 0.25 percent, while the marginal lending rate went from 1.75 to 1.5 percent. According to Bloomberg, today's ECB action will lower borrowing costs for challenged banks and “could build on the confidence boost euro-area governments delivered last week when they took steps toward a deeper economic union,” while not doing much to stimulate demand.
European and US equities briefly spiked upward following actions out of England and China, but have tempered again once the ECB decision was announced. The euro also trended lower against the dollar on the news. However, the ADP Employment Report reported a big beat, which may yet again have markets shifting direction modestly.
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