 Australia cuts interest rate
(China Daily)
Updated: 2008-10-08 08:15 Australia's central bank cut its benchmark interest rate by one percentage point, the most since a recession in 1992, triggering a rebound in Asian stocks on speculation other countries will follow to unlock credit markets. "There's some talk around that there could be a coordinated global interest-rate cut tonight and that the Reserve Bank of Australia is preempting that," said Simon Bonouvrie, a portfolio manager at Platypus Asset Management in Sydney. Yesterday's cut to 6 percent, twice as much as most economists forecast, is aimed at getting banks to resume lending. Banks around the world have been hoarding cash, driving up lending rates, even as central banks including Australia's pump money into the financial system.
Reserve Bank of Australia Governor Glenn Stevens said in Sydney yesterday that "an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers". Australia's S&P/ASX 200 stock index jumped 1.7 percent to 4,618.7 at the close in Sydney, reversing a drop of 0.5 percent immediately before the Reserve Bank decision. The MSCI Asia Pacific Index pared a 3.2 percent loss before the rate cut, and was down 1.2 percent at 99.27. The Australian dollar initially fell before rising to 72.25 US cents at 4:15 pm in Sydney from 72.06 cents before the decision was announced. The currency has tumbled 27 percent since hitting a 25-year high of 98.49 cents on July 16. The Reserve Bank cut the benchmark interest rate by a quarter point a month ago after pushing borrowing costs to a 12- year high with a dozen similar increases between May 2002 and March this year. The bank's cut came after a rout wiped more than $2 trillion from global markets on Monday, sending the Dow Jones Industrial Average to its first close below 10,000 since 2004. "It's obvious there's a need for synchronized global rate cuts," said Rory Robertson, an economist at Macquarie Group Ltd in Sydney. "You've got the most savage tightening in financial markets in anyone's living memory and all the big central banks have sat on their hands." Robertson said the Bank of England is "long overdue" to cut borrowing costs by up to 1 percentage point, followed by the US Federal Reserve and the European Central Bank. ECB President Jean-Claude Trichet said policy-makers discussed an interest-rate reduction at their Oct 2 meeting for the first time since the credit squeeze began. Still, they left the benchmark unchanged at 4.25 percent. The ECB is due to meet again on Nov 6, and Fed policy makers on Oct 29. UK central bankers, who meet today, are forecast to lower their benchmark by at least 25 basis points. Agencies (China Daily 10/08/2008 page17) |
