If Business is Good, You Don't Have To Cut Rates!

If businesses are really good, central banks dont have to cut rates. Why the needs to cut rates? One of the reason is to spur investments. Lower interest rates will attract people to borrow money. And as demand for loans increases, the central banks will gradually adjust the interest rates upward.

Where in the world can you see the central banks are increasing interest rates now?? Arent you wondering why the world seems like stop functioning for a while?? The economy needs time to recover. Its not a one day or one month or even one year efforts. It needs several years to get things back to normal. Like Buffett said, I dont know when the economy will recover, but I believe the economy will be better in five years time. Maybe you still have three years to decide whether to be back in the market.

Is Europe the next to cause chaos to financial markets?? Lets wait and see..
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ECB cuts rates to record low of 1%

FRANKFURT/BERLIN: The European Central Bank (ECB) cut interest rates to a record low of 1% on May 7, giving shares another reason to rise as German data gave further evidence the downturn is bottoming out.

With central banks still battling recession, the Bank of England (BOE) increased the size of its asset purchase programme by £50 billion (RM264.2 billion) as it left interest rates at a record low of 0.5% for a second month.

Markets were also looking ahead to results of US government-inspired health checks or "stress tests" on 19 leading US banks, due later in the day and set to show more than half in need of billions of dollars in extra capital.

But US Treasury Secretary Timothy Geithner said no US banks screened by regulators face the risk of insolvency and also said the pace of the US economic decline was slowing, even as the economy faced enormous uncertainty.

"There are some places where we're seeing things starting to improve, but the main thing is a sense of stability," Geithner said.

The pan-European FTSEurofirst 300 index of top shares jumped to a four-month high, with banks leading the advance. In Germany a surge in foreign demand unexpectedly pushed manufacturing orders 3.3% higher in March, their first increase in seven months.

"Today's number offers some relief for a battered industry," said Carsten Brzeski at ING Financial Markets. "The car scrap scheme and some new foreign orders indicate the free fall has come to an end and give hope that the worst might be over."

Signs of recovery in the bank sector continued as Britain's Barclays Plc said first-quarter (1Q) profit rose 15% on a strong performance in investment banking, boosting its shares to a seven-month high.

European banks as a whole gained more than 3%.

The ECB's quarter point rate cut, as expected, could be followed by further policy measures to get the economy back on its feet, such as quantitative easing, or the repurchase of government debt with new money created by the central bank.

Economists await any comments by President Jean-Claude Trichet at his 1230 GMT news conference on whether the ECB has reached a floor or still has room to go lower.

BOE left interest rates at a record low 0.5% and said it would increase the size of its asset purchase programme to £125 billion.

"Despite the biggest stimulus in UK history, the recession continues to deepen. But don't panic, the policies put in place will work eventually," said Stephen Boyle at Royal Bank of Scotland.

So far the BoE has bought more than £50 billion of assets, mainly government bonds. -- Reuters

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