Central banks around the world cut interest rates in unison yesterday to try to limit economic damage from the worst financial crisis in 80 years.
In an unscheduled announcement made as New York traders were reaching their offices, the Federal Reserve said it was cutting its key federal funds rate by 50 basis points to 1.5 per cent.
China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in a coordinated response which investors had been demanding.
Battered shares rallied initially on the move, but European stocks then fell anew and US stocks looked set to open lower as the initial euphoria evaporated. The US approved a $700 billion package last week to rescue its ailing banks but failed to rally its markets. Governments across the globe have been pushing ahead with their own emergency measures amid calls for a more coordinated approach.
The Fed set out the threat to the economy from a crisis which has redrawn the banking landscape and left many people frightened of losing their savings and their jobs.
"Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months," it said in a statement.
"Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."
Yesterday's monetary policy barrage marked the first time China, growing ever more important in global economic terms, has announced a change in rates at the same time as other countries.
Analysts questioned whether the move would be enough to turn the tide.
"The fact that we have got them coming across the board suggests that this is the end game," said Peter Dixon, an economist at Commerzbank in London. "Will it help the markets? Questionable in the short term."
The cuts followed days of calls for concerted action by economists and world leaders after repeated injections of liquidity by central banks into money markets failed to halt a crisis of confidence.
"The central banks of the world have finally woke up to the gravity of the current situation," said Charles Diebel, the head of interest rates strategy at Nomura. "This is a major step to convincing the world that they are serious about stabilising."
British Prime Minister Gordon Brown called in a letter to leaders of the world's major economies for concerted action to guarantee interbank lending, a G7 source said.
Mr Brown urged the leaders of other Group of Seven nations to issue "a set of national guarantees to a broadly similar design" to restore trust in the global market for bank funding, the source said.
Mr Brown had said earlier the global financial market had ceased to function after bad debts stemming from a collapse in the US housing market poisoned the system.
Britain offered to pump at least £50 billion (€64.38 billion) into its biggest retail banks to help them survive the crisis (see page 14).
Italy prepared to announce its own measures which sources said could be based on the British model, while Spain has said it is setting up a €30 billion euro fund to buy assets from banks and keep credit flowing.
The Bank of Japan, which did not join the world's central banks' coordinated rate cuts, said it will study ways to improve its market operations to enhance stability of financial markets.
The crisis has caused turmoil in once flourishing economies.
Facing financial meltdown, Iceland has taken over two of its largest banks - Landsbanki and Glitnir - and is seeking a €4 billion loan from Russia.
In the latest sign of gloom, corporate bankruptcies in Japan jumped 34.5 per cent year-on-year, a research firm said.
In its bleakest forecast in years, the International Monetary Fund said yesterday the world economy was set for a major downturn with the United States and Europe either in or on the brink of recession.
The IMF said a still-developing financial upheaval - the most violent since the 1930s - would exact a heavy economic toll as markets wrestle with a crisis of confidence and global credit is choked off. The IMF's assessment was written before yesterday's globally coordinated interest- rate cut of half a percentage point.
In another development Europe's biggest bank HSBC Holdings said it had no plans to use a UK government offer to recapitalise as it can keep a strong capital position through its own resources.
"HSBC has no current plans to utilise the UK recapitalisation programme initiative announced today. We do agree to observe the tier 1 capital requirements, but we will do this through our own resources," a spokesman said.
HSBC has one of the strongest capital and liquidity positions in the industry, with a tier 1 capital ratio of 8.8 per cent and a loans/deposits ratio of 90 per cent.
In an unscheduled announcement made as New York traders were reaching their offices, the Federal Reserve said it was cutting its key federal funds rate by 50 basis points to 1.5 per cent.
China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in a coordinated response which investors had been demanding.
Battered shares rallied initially on the move, but European stocks then fell anew and US stocks looked set to open lower as the initial euphoria evaporated. The US approved a $700 billion package last week to rescue its ailing banks but failed to rally its markets. Governments across the globe have been pushing ahead with their own emergency measures amid calls for a more coordinated approach.
The Fed set out the threat to the economy from a crisis which has redrawn the banking landscape and left many people frightened of losing their savings and their jobs.
"Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months," it said in a statement.
"Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."
Yesterday's monetary policy barrage marked the first time China, growing ever more important in global economic terms, has announced a change in rates at the same time as other countries.
Analysts questioned whether the move would be enough to turn the tide.
"The fact that we have got them coming across the board suggests that this is the end game," said Peter Dixon, an economist at Commerzbank in London. "Will it help the markets? Questionable in the short term."
The cuts followed days of calls for concerted action by economists and world leaders after repeated injections of liquidity by central banks into money markets failed to halt a crisis of confidence.
"The central banks of the world have finally woke up to the gravity of the current situation," said Charles Diebel, the head of interest rates strategy at Nomura. "This is a major step to convincing the world that they are serious about stabilising."
British Prime Minister Gordon Brown called in a letter to leaders of the world's major economies for concerted action to guarantee interbank lending, a G7 source said.
Mr Brown urged the leaders of other Group of Seven nations to issue "a set of national guarantees to a broadly similar design" to restore trust in the global market for bank funding, the source said.
Mr Brown had said earlier the global financial market had ceased to function after bad debts stemming from a collapse in the US housing market poisoned the system.
Britain offered to pump at least £50 billion (€64.38 billion) into its biggest retail banks to help them survive the crisis (see page 14).
Italy prepared to announce its own measures which sources said could be based on the British model, while Spain has said it is setting up a €30 billion euro fund to buy assets from banks and keep credit flowing.
The Bank of Japan, which did not join the world's central banks' coordinated rate cuts, said it will study ways to improve its market operations to enhance stability of financial markets.
The crisis has caused turmoil in once flourishing economies.
Facing financial meltdown, Iceland has taken over two of its largest banks - Landsbanki and Glitnir - and is seeking a €4 billion loan from Russia.
In the latest sign of gloom, corporate bankruptcies in Japan jumped 34.5 per cent year-on-year, a research firm said.
In its bleakest forecast in years, the International Monetary Fund said yesterday the world economy was set for a major downturn with the United States and Europe either in or on the brink of recession.
The IMF said a still-developing financial upheaval - the most violent since the 1930s - would exact a heavy economic toll as markets wrestle with a crisis of confidence and global credit is choked off. The IMF's assessment was written before yesterday's globally coordinated interest- rate cut of half a percentage point.
In another development Europe's biggest bank HSBC Holdings said it had no plans to use a UK government offer to recapitalise as it can keep a strong capital position through its own resources.
"HSBC has no current plans to utilise the UK recapitalisation programme initiative announced today. We do agree to observe the tier 1 capital requirements, but we will do this through our own resources," a spokesman said.
HSBC has one of the strongest capital and liquidity positions in the industry, with a tier 1 capital ratio of 8.8 per cent and a loans/deposits ratio of 90 per cent.