Will rate cuts halt equities slide?

Investor Marc Faber said a series of coordinated interest-rate cuts by central banks including the Federal Reserve to ease the economic effects of the global financial crisis won't halt a worldwide slide in equities.

"Artificially low interest rates" that encouraged consumers and banks to take on more debt were the main cause of the credit-market turmoil that caused the failure of Bear Stearns and Lehman Brothers, according to Faber, who predicted the 1987 stock-market crash.

"The slashing of interest rates will not help very much," Faber, said in an interview in Manila. "They may cushion somewhat the decline but make matters worse."

The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point in a bid to unfreeze global credit markets.

The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27%

The decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937. Policy makers are aiming to unfreeze credit markets after the premium on the 3-month London interbank offered rate over the Fed's main rate doubled in 2 weeks to a record.

Policy makers are reducing rates as economies weaken around the world. The International Monetary Fund said the global economy is heading for a recession in '09 and increased its estimate of losses from the financial crisis to US$1.4 t.

The Fed cut its key rate to 1.5%, a level last seen in Sep '04. Low interest rates on deposits have pushed consumers to speculate on higher yields in other assets including stocks, real estate and commodities, Faber said.

"Had central banks around the world kept interest rates that encourage saving we won't have these problems today,'' the investor said.

Faber, publisher of the Gloom, Boom & Doom report, told investors to sell U.S. stocks a week before 1987's so-called Black Monday crash, according to his Web site, and recommended buying gold at the start of its 6-year rally.