Fed fights crisis full-on with 50 bps rate cut

MUMBAI/WASHINGTON/LONDON: The Federal Reserve cut a key interest rate by a hefty half-percentage point on Wednesday to prevent a widening credit crisis from tipping the US into a prolonged recession.

The unanimous decision takes Fed���s target for overnight bank lending to 1%, the lowest since June 2004. The US central bank has cut key overnight rates from 5.25% in nine steps over the past 13 months.

The Fed move was preceded by China and Norway kicking off the latest round of global cuts earlier in the day. This follows a concerted rate cut by major central banks on October 8, which failed to perk up world financial markets. China cut its interest rate to 6.66% from 6.93% while Norway���s central bank cut rates by 50 basis points to 4.75%, ending more than three years of tightening.

The European Central Bank and Britain too are expected to add to the worldwide monetary easing next week.



Wednesday���s rate cuts lifted stock markets for much of the day but analysts said any recovery would be shortlived given that a sharp economic downturn was already in progress. Japan���s Nikkei index ended up 7.7% and European shares climbed 5%, with sentiment boosted by China���s rate cut. US shares opened lower, following the second-biggest ever rise a day earlier.

Back home, Indian equities ended marginally higher after swinging between positive and negative terrain throughout trade due to October F&O expiry. Shares of metals and oil & gas companies surged as commodities bounced back in international markets while realty, pharmaceuticals and FMCG stocks ended in the red.

On Wednesday, the Sensex closed at 9,044.51, up 36.43 points (0.40%) from Tuesday���s close. The Nifty ended at 2,697.05, up 12.45 points (0.46%). However, BSE Midcap Index closed lower by 1.99% and BSE Smallcap Index ended down 1%.