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“Central banks in China, the euro zone, the U.K. and other countries took new steps to bolster growth amid mounting worries about the global economy,” the Wall Street Journal reports, “but the moves didn’t appear to reassure investors.” The European Central Bank not only slashed a benchmark short-term lending rate to a record low 0.75 percent, it also cut another rate that it pays banks to zero. The People’s Bank of China, meanwhile, announced plans to reduce a one-year yuan lending rate to 6 percent. Not to be outdone, the Bank of England increased a bond-buying program by £50 billion, or US$78 billion in an attempt to drive down long-term interest rates. According to the Journal, “central bankers hope cheaper credit will induce businesses and households to borrow, spend, and invest to boost growth. Lower rates could also reduce the burden of past loans on borrowers.”
At the same time, Bloomberg has learned that the International Monetary Fund (IMF) is set to reduce its estimate for global growth this year on weakness in investment, jobs, and manufacturing in Europe, China, India, the United States, and Brazil. The publication states, “Interest-rate cuts in China and Europe yesterday and the Bank of England’s boost to an asset-purchase program underscored the fragility of the global recovery as austerity measures and debt burdens weigh on advanced nations.” To aid growth and financial stability, IMF Managing Director Christine Lagarde is pressing for fiscal union in Europe as such countries as Greece wrestle with balancing their books. She adds that the “key emerging markets” of Brazil, China, and India are indeed showing signs of slowdown. “Those three countries along with Russia will comprise more than 20 percent of the world economy this year,” reports IMF data.
Separately, Reuters columnist Marc Jones warns that the euro zone’s plan to let the European Central Bank supervise its largest banks “requires governments to give it unambiguous powers, sets a highly ambitious timetable, and poses potentially dangerous conflicts of interest.” The European Commission will lay out the blueprint early this fall, giving lawmakers sufficient time to discuss changes ahead of an end-of-year deadline that must be met in order for the euro zone’s bailout fund to begin recapitalizing banks direct.