By: Hillel Fuld
Hot on the heels of the US Federal Reserve’s decision to maintain their interest rate at 0.25%, but to inject a further $600 billion into the economy as a measure to stimulate growth, the Bank of England and the European Central Bank announced their own decisions.
There had been considerable speculation that the Monetary Policy Committee (MPC) of the Bank of England would engage in its own round of quantitative easing, but better than expected Q3 data and improved manufacturing output data were sufficient for the MPC to decide that no additional stimulus was needed at the moment. Obviously, the situation will be carefully monitored, particularly as government austerity measures begin to take effect. The bank left interest rates on hold at 0.5%.
The European Central Bank had been widely expected to leave their rates on hold at 1% and this was what they did. The rate has been on hold for the past 18 months. The concept is that low interest rates make it possible for banks to loan money to business at “cheap” rates such that the business sector can expand (or more likely consolidate), helping the recovery. The ECB believes that inflationary pressure will remain “moderate” in 2011.
Globally, stock markets have reacted well to the latest raft of central bank actions with both the Dow and the FTSE closing 2% higher and at the highest levels seen in two years.
As expected, the Dollar has fallen against the other major currencies and was down by 2 cents against both Sterling and the Euro at $1.6273 and $1.4239, respectively. It closed lower against the Yen at ¥80.66 to the Dollar.