"Sweden's central bank slashed its key interest rate by a record 175 basis points to 2.00 percent on Thursday, a shock move to try to prevent the economy from sliding deeper into recession.
The cut, more than three times larger than any reduction the central bank has ever made, was a far bolder move than markets had expected. Most economists were calling for 100 basis points"
So from 3.75% to 2%, what a move!, it looks like a panic or a shock therapy to resucitate a non-reacting credit market.
So economist models got it wrong - they thought that high debt was sustainable as Asian countries were willing to save and allow the other to consume - Unfortunately the adjustement was far faster than anyone would have predicted.
Bankers made the same mistakes as in the late 80's. They clearly learn the wrong lessons- they lent in the past 10 years or more, to consumers in a frenzic way amid stagnating real income.
I wouldn't be surprise to see the ECB following in the same foot step, slashing rate to 2% sooner than people think as the situation could even be worse than the one in the U.S. . The U.S. starting correcting while the global economy was still growing...Europe will correct during the worst time possible...
2% is the first step, I think we could go toward the 0.5% by 2010, and follow the same "quantitative easing" as Japan, in order to put a floor to the debt deflation process...
Some updates concerning the U.K. :
"The Bank of England cut the benchmark interest rate to 2 percent, the lowest level since 1951 as lenders rationed credit, pushing the U.K. economy deeper into a recession.
The Monetary Policy Committee, led by Governor Mervyn King, reduced the bank rate by 1 percentage point, the central bank said in London today. The move matched the median forecast of 61 economists in a Bloomberg News survey. Sweden’s central bank also cut its rate today by the most since 1992.
“Conditions in money and credit markets remain extremely difficult,” the bank said in a statement. “The committee noted that it was unlikely that a normal volume of lending would be restored without further measures.”"
Indeed, it's all in the "Shock and Awe" technique... it's just reflect how bad the situation is. Obviously, it's not going to take any effect in the very short term but all the hopes are about the medium term: 2-5 years, that the current stimulus will prevent Economical and Social "Armagedon".
How about Europe?:
"The European Central Bank delivered the biggest interest-rate cut in its 10-year history (0.75% from 3.25% to 2.5%) after the economic slump deepened and the inflation rate plunged."
First, It worth to note that they will deliver more in the future. So for the moment, it's just a warming exercise as they need to keep some ammunition to deliver in January further cuts when the situation will seem or is about to get out of control.
Second, they don't want to see the Euro plunging against other currency i.e they will try to keep interest higher than the rest (UK, US) .
So for the moment, tighten your belt, keep calm...at least until 2010, at best or 2015 at worse.