Crisis tops G7 agenda as rates head for zero
Group of Seven central bankers met in Rome this weekend to exchange notes on what they can do once interest rates cannot go down any further in a desperate bid to pull their economies out of recession.
With US and Japanese rates already virtually zero, and the European Central Bank and Bank of England heading that way, printing money is understood to be the next step -- with the banks buying assets to raise money supply and, thereby, boost demand in the economy.
So-called quantitative easing was applied in Japan with mixed results in the early part of this decade as part of that country's long battle with deflation, a damaging spiral of descending prices which leads consumers to defer spending.
It is now being considered by most of the major central banks as the world experiences its most significant and synchronised downturn in decades.
The US Federal Reserve, which has cut interest rates to between zero and 0.25pc, has already started what it prefers to call "credit easing" and the Bank of England could follow suit as quickly as next month.
Eurozone policymakers are watching, but European Central Bank President Jean-Claude Trichet said the ECB had not drawn any particular conclusions after discussions with other central banks.
"I have said that I did not exclude additional non-standard action, but no decision has been taken yet on top of the non-standard action we have already decided to do and we will see," he said on Saturday.
Fellow ECB policymakers Mario Draghi, Christian Noyer and Axel Weber said the ECB was already taking non-standard steps by flooding markets with liquidity and gave no indication that they were ready to move to the next step of direct asset purchases.
The ECB held interest rates at 2pc this month but is widely expected to cut them to a record low of 1.5pc next month, especially after figures out on Friday showed the eurozone economy shrinking 1.5pc in Q4 of 2008. (Reuters)