The Bank of England on Thursday left its key interest rate at 5.75%, saying it was still too early to gauge how the turmoil in financial markets would impair the availability of credit. Likewise, the European Central Bank left its interest rate unchanged at 4%, calling off an anticipated increase after the U.S. housing slump and credit market turmoil threatened economic growth. The BoE said its Monetary Policy Committee is closely monitoring "the evolution of both credit spreads and the quantity of credit extended." The statement was unprecedented, as the central bank normally only comments when there's a rate change. The decision came a day after the BoE offered extra money to reduce "unusually high" overnight rates. That move was closely followed Thursday by the ECB lending €42.25B in emergency cash to banks for the fifth time in a month to lower the cost of credit. One strategist said the move "could help calm nerves," but that it remained to be seen whether it would resolve the situation. The ECB had indicated late Wednesday it was prepared to intervene again to assure orderly conditions. Central banks around the world added more than $350B to money markets from August 9-14 to help smooth lending as the credit crisis that started in the U.S. subprime market spread. Meanwhile, Australia's central bank said it would buy debt backed by home loans to add cash to the financial system.
Sources: Bloomberg, MarketWatch, Financial Times, Wall Street Journal
Commentary: Why is the EU a Basket Full of Worries? • Housing, Credit Weakness to Further Test U.S. Economy -- OECD
Stocks/ETFs to watch: SPY, DIA, AGG, EFA
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