The major world economies, led by the U.S. and UK interest rate cut Wednesday in an emergency move to tackle the global financial crisis after days of record losses in the stock market.
that the U.S. Federal Reserve reduced its main rate by half a percentage point, with the central banks of China, England, Sweden, Switzerland and the European Central Bank, all following suit.
The Fed reduced its key rate of 2 percent to 1.5 percent. In Europe, the Bank of England cut its rate half point to 4.5 percent, while the European Central Bank lowered its rate to 3.75 percent.
Markets reacted cautiously to the development, trimming earlier losses but still relatively flat. Futures trading on Wall Street indicates a modest but positive reception.
The coordinated action followed by the UK opening of a $ 87.4 billion rescue package for its battered banking system Wednesday and huge losses in trade in Asia which saw Japan the Nikkei plummet more than 9 percent larger in his only day of decline ever.
There were widespread declines in Asia: Sydney’s All Ordinaries index fell 4.96, Japan’s Nikkei fell five-year low to 9.38 percent and Hong Kong Hang Seng fell 8.17 per cent – even in the territory announced that interest rates lower, a full percentage point.
In Jakarta, 10.38 percent plunge in the composite index led the markets to be reduced to halt the decline. Other declines included South Korean KOSPI at 5.81 percent, Taipei Weighted at 5.76 percent.
“Investors are now afraid that the world is going to go into a depression,” said Jesper Koll with Tantallon Capital Research in Tokyo.
Europe seems to be following suit, with major markets outside Russia for more than 10 percent before trading was suspended – now a regular occurrence – and other rates drop substantially.
The London FTSE index of the recorded early losses, with shares of the bank meeting at the news that the UK Treasury was making £ 25 billion available to major financial institutions with another £ 25 million available if needed.
British Prime Minister Gordon Brown called the move a “bold and far-reaching solution” for the “extraordinary times”, insisting that the measure, which will be the taxpayers have a stake in the banks, will “put the British banking system a stronger footing. ”
“This is not a time to think or conventional outdated dogma, but for new and innovative intervention that reaches the heart of the problem,” he said.
Finance Minister Alistair Darling said the measure “sends a clear message” that can intervene and help the financial industry amid the global economic crisis that exploded after the collapse of the U.S. sub-prime mortgage industry.
Darling insisted that the government, which has already nationalized the main mortgage lenders Northern Rock and Bradford and Bingley to avoid the collapse, it is not assume the operation of banks.
The scheme, with the participation of Abbey National, Barclays, HBOS, HSBC Bank, Lloyds TSB Bank, National Building Society, Royal Bank of Scotland and Standard Chartered Bank, comes a day after British banks’ nosedived share prices of Investors fear that it would not be able to weather the financial storm without help.
On Tuesday, European Union finance ministers agreed to raise the minimum guarantee of bank deposits in all Member States. The change came as Iceland took control of its second largest bank.
French Finance Minister Christine Lagarde said finance ministers of the EU have agreed to raise the minimum guarantee on bank deposits to € 50,000 ($ 68,600) in all EU member states.
The amount less than had been expected, but Lagarde said the figure was agreed to allow the smaller countries of the EU and economies to meet the minimum.
Meanwhile, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday that the global financial crisis is likely to limit the U.S. economy well into 2009.
However, he added that the unprecedented measures taken by the U.S. Department of Treasury and the Fed made in time to avoid more costly and permanent damage to leading financial institutions.
As Bernanke spoke to a meeting of business leaders the U.S. Federal Reserve announced a new program to help short-term commercial loans – taking its closest step yet to grant loans directly to businesses.
The intervention was the Treasury Department scrambled to launch a $ 700 billion bailout of the financial system, enacted on Friday.
Under that program, the Treasury is expected to buy assets from troubled banks and financial institutions in an effort to push more loans.
Under the program announced on Tuesday morning, the Federal Reserve to purchase three-month unsecured bonds and commercial paper directly from the issuers eligible. The program is scheduled to expire in April 2009.