Australian central bank interest rate cut reveals fears of global slowdown

In an extraordinary attempt to shore up the country’s banking system and stem the local share market crash, the Reserve Bank of Australia (RBA) yesterday reduced official interest rates by a full percentage point—double the cut expected by the money markets.

Financial commentators were stunned and initially elated by the move, the first time that rates have been slashed by 100-basis points since May 1992, during the last recession. Australian share prices, which had fallen almost 10 percent in a week, bounced back sharply on the news. The ASX 200 closed 1.7 percent higher at 4,619, after diving more than 3 percent in early trade.

The Australian dollar, which had suffered its greatest-ever week-long decline against the US and Japanese currencies, rallied to close at around 72 US cents, still far below its near-parity with the greenback just over two months ago. By this morning, however, the dollar’s fall to under 70 cents had resumed.

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