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European Central Bank cuts key interest rate to new low
There are other safe havens for banks to place their money — government bonds of financially strong countries like Germany, for example. But a central bank is considered the ultimate safe haven since it can print money at will.
The eurozone crisis has battered investor confidence for 2 ½ years. It has seen Greece, Ireland and Portugal need bailouts from the other eurozone countries and the International Monetary Fund to keep paying their debts and covering their budget deficits. Spain has asked for as much as €100 billion in rescue loans for its banks.
Earlier in the day, the central banks of China and Britain took action to stimulate their economies.
The Bank of England decided to purchase another 50 billion pounds in government bonds from financial institutions. The hope is that the banks will use the extra cash to lend to businesses and households.
China’s central bank, meanwhile, cut interest rates for the second time in a month to shore up its economy, the second-largest in the world. Interest on a one-year loan was reduced by 0.31 percentage points to 6 percent effective Friday. Chinese authorities have rolled out a series of stimulus measures since March after economic growth slowed to a nearly three-year low of 8.1 percent in the first quarter.
In the U.S., weak economic indicators have raised speculation that the U.S. Federal Reserve may also have to do more to keep the U.S. economy growing. Some think the Fed might carry out a third round of bond purchases aimed at driving down interest rates on business and consumer loans.
The Fed took more limited action at its meeting ending June 17, extending its so-called Operation Twist effort in which it sells short-term bonds and buys longer-dated issues to push down long term interest rates. The Fed meets next Aug. 1.
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