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.