Fed, ECB cut interest rates

Click to follow
The Independent Online

The Federal Reserve cut a key interest rate by one–half point today, trying to keep the US economy from falling into a recession.

The reduction pushed the federal funds rate to 3 percent, the lowest level in nine years. It was the eighth rate cut this year as the Fed has been trying to jump–start the ailing U.S. economy.

The action came after an emergency conference call among Fed policy–makers two hours before Wall Street was scheduled to open for the first time since last Tuesday's terrorist attack.

In Frankfurt, the European Central Bank quickly followed suit and cut its main interest rate by a half point to 3.75 per cent.

In a related action, the Fed Board of Governors approved a half–point reduction in the discount rate, which the Fed charges on loans to banks, to 2.5 percent. The Fed last week invited banks to make full use of the discount window if they were facing unusual withdrawal problems because of disruptions following the bombing of the World Trade Centre in the heart of New York's financial district.

A Fed spokeswoman said the Federal Open Market Committee, the policy–making group that sets interest rates, began its 25–minute conference call with a moment of silence for victims of the attack.

The Fed rate cut was the biggest effort so far by US authorities to instill confidence in a badly shaken financial system.

In a statement explaining its action, the Fed said it would "continue to supply unusually large volumes of liquidity to the financial markets as needed until more normal market functioning is restored."

The action by the Fed was followed immediately by announcements from major banks that they will lower their prime rate, the benchmark for millions of business and consumer loans, by a similar half–point, to 6 percent.

Analysts applauded the half–point rate cut, saying it was the right move to try to bolster the economy and financial markets.

Europe's stock exchanges bounced back after an uncertain morning, despite sharp falls in the Asian Markets, as the financial world waited for New York to reopen

Uncertainty over how Wall Street will react to the terror atttack on America saw Tokyo's Nikkei stock average fall by five percent, finishing on an 18-year-low of 9,504 points.

The Japanese stock market was already struggling due to the country's poorly-performing economy, but last Tuesday's assault has sent many shares into a nosedive, with Monday's drop leaving the Nikkei below the psychologically important 10,000 point barrier.

In Australia the All Ordinaries index slumped by 4.8 per cent, Similar falls were also seen in Hong Kong, Singapore and Bangkok.

Spencer Yap, vice president at BPI Securities in Manila said: "Investors have liquidated their positions in anticipation of a sharp drop in the U.S. market later tonight."

In South Korea stocks were down by nearly three per cent and the government is considering easing the regulations on companies buying back their own shares in an effort to halt the slide.

Comments