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SYDNEY: Australia's central bank slashed interest rates by one percentage point on Tuesday amid fears of a global slowdown sparked by the US-based financial crisis.
The Reserve Bank of Australia (RBA) reduced its official cash rate from 7.0 per cent to 6.0 per cent, just a month after a 25 basis point cut marked the first downward movement in more than six years.
The cut was much bigger than expected by economists, who had tipped rates to drop by 25 or 50 basis points, and saw an immediate jump in share prices on the Australian stock market.
Shares which had been down more than 3.0 per cent in early trade, after panic over the scope of the financial crisis sent markets plummeting worldwide, were up around 1.0 per cent within minutes of the bank's announcement.
"At its meeting today, the Board decided to lower the cash rate by 100 basis points to 6.0 per cent, effective October 8, 2008," the RBA said in a statement. It was the biggest single rate cut by the central bank since May 1992.
The recent deterioration in the prospects for global growth and much more difficult market conditions presented a risk that demand and output could be significantly weaker than earlier expected, said RBA governor Glenn Stevens.
"Should that occur, inflation would most likely fall faster than earlier forecast," he said in a statement.
"Given that background, the board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy."
The board also took careful note of movements in funding costs in wholesale markets.
"Having weighed these considerations, the board decided that, on this occasion, an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers," Stevens said.
"The board does not, however, regard that movement as establishing a pattern for future decisions.
The central bank's move came as world stock markets plunged again Tuesday as the global financial crisis deepened, with governments taking emergency measures to shore up confidence but failing to stem the panic.
Markets in Asia opened sharply down, with shares in Tokyo falling more than five per cent at one point, a day after a global rout saw New York's Dow Jones Industrial Average fall below 10,000 points for the first time since 2004.
In Washington, Treasury officials said they would act quickly to implement a massive bailout plan for the financial sector, seeking bids by Wednesday to manage the troubled mortgage-related assets at the root of the crisis.
The Federal Reserve and Treasury said they were studying the possibility of making unsecured loans in an effort to keep much-needed credit flowing.
In Europe, finance ministers were to begin preparing their first joint measure Tuesday to reassure nervous savers by ramping up minimum bank deposit guarantees.
In a joint declaration Monday they pledged to protect the stability of financial institutions by providing "liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes."
- AFP/yb
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