The Hindu Business Line : US Fed cuts key rates

WASHINGTON: Desperate to avoid a depression like the one witnessed in 1929, the US Fed in coordination with other central banks on Wednesday announced a cut in key rates to stimulate consumption and economic activity.

The Fed has decided to lower its target for the federal funds rate by 50 basis points to 1.5 per cent, it said in a joint statement by six central banks, mainly from Europe and North America. The Bank of Japan expressed strong support for the decision, w hile China cut interest rates for the second time in less than one month to increase money availability in the market.

On Monday, India's central bank RBI too reduced the Cash Reserve Ratio by half-a-per cent to release Rs 20,000 crore into the banking system.

The US Fed's action comes in the light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures, the joint statement said.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability, the statement said.

“Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets,'' said the statement issue d jointly by the Fed, the Bank of Canada, the Bank of England, the European Central Bank, Sweden's Sveriges Riksbank and the Swiss National Bank. - PTI

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