US cuts rates, IMF opens new liquidity windows

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WASHINGTON, Oct 30 (AFP): The US Federal Reserve sliced its key interest rate another 0.5 percentage points to 1.0 per cent yesterday as signs emerged of thawing credit markets around the world.
The Fed's expected action came after China also chopped its benchmark one-year deposit rate by 27 basis points to 3.60 in a bid to spur economic growth, and expectations rose for rate cuts in Japan and Europe.
"Downside risks to growth remain" for the world's biggest economy, said the Fed's rate-setting committee in announcing the cut.
Stock markets in Asia and Europe soared on the prospect of easier money conditions, but benchmark US indexes which rocketed more than 10 per cent Tuesday eased-the Dow Industrials off 0.85 per cent and the S&P 500 down 1.11 per cent-as traders had mostly already priced in the Fed's rate cut, and as the Fed's statement lacked positive news.
Ian Shepherdson, chief US economist at High Frequency Economics, said the Fed produced "a very downbeat statement, with all mention of upside inflation risks expunged from the record."
Signs of global financial stress were still everywhere.
The International Monetary Fund (IMF) created a new short-term liquidity facility for countries battered by the crisis.
The IMF executive board said the emergency tool was "to establish quick-disbursing financing for countries with strong economic policies that are facing temporary liquidity problems in the global capital markets."
"Exceptional times call for an exceptional response," IMG Managing Director Dominique Strauss-Kahn said.
The US Fed announced its own temporary "swap" facilities with central banks in Brazil, Mexico, South Korea and Singapore to help those countries ease a credit squeeze.
Each would be provided up to 30 billion dollars in liquidity, it said, "in response to the heightened stress associated with the global financial turmoil, which has broadened to emerging market economies."
"The currency swap deal with the US Fed will help stabilise the local financial market," BoK governor Lee Seong-Tae told reporters.