Sweden Slashes Interest Rate to 2 Percent

On Thursday the Swedish central bank made the decision to sharply reduce its main interest rate, in the first round of what was shaping up to be day of major moves by the global monetary authorities.

The Riksbank made its biggest reduction ever when it decided to cut its main interest rate by 1.75 percentage points to 2 percent. The company said that it had to move forward its rate decision by two weeks to ease the deteriorating employment situation and meet its 2 percent inflation target. The central bank Oct. 23 had cut its interest rate by half a percentage point to 3.75 percent. The Bank of England and the European Central Bank are also expected to cut their main interest rates in an attempt to restart economic growth and to ease the financing problems of banks. The two banks will be meeting later on Thursday. On Thursday New Zealand also reduced its main interest rate by a record 1.5 percentage points, to 5 percent, its fourth cut since July. Alan Bollard is the New Zealand central bank’s governor and he said that the policy move is in response to the ongoing financial market turmoil. Ben May, an economist at Capital Economics in London, wrote in a research note that the Swedish Riksbank’s move highlights the degree to which the economic outlook has deteriorated. May also predicted that the Swedish economy would contract by 1 percent next year would expand by only 0.8 percent in 2010. May said that as a result they think that interest rates interest rates have further to fall and could reach 1 percent next year. The U.S. Federal Reserve has cut its target for overnight borrowing costs between banks, the Federal funds rate, to 1.0 percent, from the 4.25 percent at which it started 2008. The effective rate is actually much lower, about 0.25 percent early Thursday morning in Europe, because the U.S. central bank has been pumping cash into the money markets. the Fed has also started to purchase massive amounts of securities, a strategy designed to force banks to lend more money for investment and spending instead of just hoarding the cash. This method is called quantitative easing and it reflects a rising conviction that the central bank needs to lower interest rates across a broad spectrum of lending. The Bank of Japan also made a cut when it decided to cut its overnight rate to 0.3 percent on Oct. 31 from an already rock-bottom 0.5 percent. China has also lowered rates aggressively in a bid to safeguard the 8 percent growth rate that is considered essential for preserving employment and social stability. Thailand, Vietnam and even Indonesia have also lowered rates this week. The Bank of England’s Monetary Policy Committee appears close to a new reduction due to having a recession on its hands.Last month the British central bank cut rates by 1.5 percent and debated an even larger cut at its policy meeting. Many economists were expecting a 1-percentage-point reduction Thursday, which would have brought the bank's policy rate to 2 percent, a level not seen in over 40 years. Jacques Cailloux is a chief Europe economist at the Royal Bank of Scotland in London and he said that they will do anything they can to prevent any sort of vicious spiral through the economy. He went on to say that the E.C.B. has been much less vocal but that might change soon. The E.C.B. is based in Frankfurt and it has said that the economies of the 15 nations in the euro zone are not in a free fall. E.C.B. officials have downplayed the prospect of deflation, a situation that would demand more rigorous intervention. .