Wednesday, 5 November 2008

Australia cuts interest rate

One of the central banks most aggressive in raising rates previously is now being even more aggressive in cutting them. From Bloomberg:

Australia's central bank cut its benchmark interest rate by a larger-than-expected three quarters of a percentage point, the third reduction in as many months, amid evidence global financial turmoil is buffeting the economy.

Governor Glenn Stevens lowered the overnight cash rate target to a 3 1/2-year low 5.25 percent in Sydney today, adding to last month's 1 percentage point reduction. Fifteen of 16 economists surveyed by Bloomberg News forecast a half-point cut and one tipped a quarter-point drop.

The world economy may need more of such rate cuts; economic data from the US on Tuesday continue to show weakness. Again from Bloomberg:

U.S. factory orders fell in September as demand for petroleum, chemicals and durable goods excluding cars and aircraft tumbled.

Total orders declined 2.5 percent after a 4.3 percent drop in August, the Commerce Department said today in Washington. Non- durables fell 5.5 percent, the most in two years. Excluding transportation equipment, bookings dropped by the most on record.

But the good news is that credit conditions are easing, as Bloomberg reports.

The cost of borrowing dollars for one month in London fell to the lowest level in almost four years as central-bank cash injections and interest-rate cuts worldwide showed signs of thawing the freeze in lending.

The London interbank offered rate, or Libor, that banks charge each other for such loans slid 18 basis points to 2.18 percent today, the lowest level since November 2004, and the 17th straight decline, according to British Bankers' Association data. The three-month rate dropped 15 basis points to 2.71 percent, the lowest level since June 9, according to BBA figures.

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