Central banks shoot 45-minute stimulus salvo as growth slows

July 5 (Bloomberg) -- Global central banks went on the offensive against the faltering world economy, cutting interest rates and increasing bond buying as a round of international stimulus gathers pace.

In a 45-minute span, the European Central Bank and People’s Bank of China cut their benchmark borrowing costs, while the Bank of England raised the size of its asset-purchase program. They acted two weeks after the Federal Reserve expanded a program lengthening the maturity of bonds it holds and Chairman Ben S. Bernanke indicated more measures will be taken if needed.

“The actions had the look and feel of a coordinated global easing campaign,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The central banks are trying to arrest the synchronized slowdown in global economic growth that has taken shape.”

Almost five years since the financial crisis first forced them into action, policy makers are reacting anew as Europe’s debt crisis persists, U.S. hiring slows and emerging markets soften. The jury is out on whether the additional monetary medicine will work or if even more will be needed.

First Push

The Bank of England began today’s stimulus push, announcing it would restart buying bonds two months after stopping as it tries to pull its economy from recession. Governor Mervyn King and colleagues raised their asset-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds, meeting the forecast of most economists. They said the economy will likely remain sluggish after contracting in the past two quarters.

Within a minute of that decision, the People’s Bank of China cut its key interest rate for the second time in a month and allowed banks to offer bigger discounts on their own lending costs. The one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow. Banks can offer loans of as much as 30 percent less than benchmark rates.

The world’s largest emerging market is acting more aggressively to spur growth that may have decelerated for a sixth quarter. Officials responded after two manufacturing indexes fell in June and ahead of a report on second-quarter gross domestic product, due on July 13.

“Policy makers have had an early look at the June data and didn’t like what they saw, suggesting the economy is weaker than they previously thought,” said Mark Williams, Asia economist at Capital Economics Ltd. in London.

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