Official interest rates have never been this low in the developed world in the 150-year period for which we have data (Graph 1). Graph 1  The reason why official interest rates have been reduced to such extreme levels is that frictions in markets had made interest rates on loans to households and businesses less responsive to cuts in official rates.
In the case of the US, for example, even though the Fed had reduced official rates by 325 basis points by September 2008, the standard mortgage  4  BIS Review 67/2009  rate had hardly changed (Graph 2). Bigger cuts in official rates were therefore needed in order to bring about a given fall in interest rates on loans.