Interest Rates Around the World are tumbling down as the Reserve Banks of different countries are trying to stabilize their economies as one of the worlds harshest financial crashes crunches down on everybody.
The Reserve Bank of New Zealand was the first to kick of cuts in December with a massive 150 basis point cut which took OCR down to 5.0%. After peaking at 8.5%, this rate has been cut 350 basis points since June and reflects the extent of the credit crisis. Since June, the New Zealand dollar has fallen 32% against the US dollar.
The Swedish central bank cut interest rates 175 basis points and took the OCR down to 2.0%. This was 75 basis points more than expected which shows how important and extreme this problem is. The OCR in Sweden have fallen 275 basis points and the currency has lost 41% since June.
The Bank of England cut rates by 100 basis points to 2.0%. The BOE was cutting rates from the end of 2007. Since December of last year, the OCR has dropped 375 basis points and the currency has fallen 28%. Housing is the major reason why the cuts are needed. The UK nationalized some of their biggest banks as their financial sector got trapped in the global credit crisis. A few days ago an aggressive plan was announced that will defer some mortgage payments for up to two years to counter rising foreclosures. House prices fell 2.6% in November and a record 14.9% for the last 3 months.
The European Central Bank joined the party by cutting rates by 75 basis points which was more than was anticipated. After raising rates in June by 25 basis points, the ECB has now cut rates 175 basis points to 2.50%. The currency has lost 21% since late June. after initially believing they were going to avoid the fallout from the US credit crisis, Europe has seen their economies collapse and doubts have been raised over the European Union’s ability to put together comprehensive financial stabilization packages.
The US Federal Reserve isn’t cutting rates yet. I have read though the Treasury is looking at a plan to force mortgage rates down. While the plan is evolving and may not be ready before Obama takes office. The US Federal Reserve dropped it interest rate late in October by 50 basis points to 1% which is the lowest level it has been since 2004 when the economy was recovering from the dot com crash. House prices in the US have come back by up to 30% in some areas. In November over 500,000 jobs were lost in the US, this is due to cost cutting by all industries to try and stay operational through this credit crisis. This is a snapshot of whats happening if you want more go to the CBNC website
The interest rate cuts do have positive impact on housing. It makes money more cheaper t borrow and closes the gap between renting and a mortgage which will see some buyers take action. The rates also help corporate borrowers who have been cutting costs and causing many in the workforce to lose their jobs. There will be still a fair bit of correction to go with this credit crisis. The banks are starting to take drastic action which has stabilized many of the markets around the world compared to what was happening.