Australia's central bank slashed interest rates by one percentage point amid fears of a global slowdown sparked by the US-based financial crisis.
The Reserve Bank of Australia (RBA) reduced its official cash rate from 7% to 6%, just a month after a 25 basis point cut marked the first downward movement in more than six years.
The cut was much bigger than expected by economists, who had tipped rates to drop by 25 or 50 basis points, and saw an immediate jump in share prices on the Australian stock market.
Shares which had been down over 3% in early trade, after panic over the scope of the financial crisis sent markets plummeting worldwide, were up around 1% within minutes of the bank's announcement. Today's cut is the biggest single rate cut by the central bank since May 1992.
The recent deterioration in the prospects for global growth and much more difficult market conditions presented a risk that demand and output could be significantly weaker than earlier expected, said RBA governor Glenn Stevens.
'Should that occur, inflation would most likely fall faster than earlier forecast,' he said in a statement.
'Given that background, the board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy,' he added.
The board of the bank also said it was taking careful note of movements in funding costs in wholesale markets.
'Having weighed these considerations, the board decided that, on this occasion, an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,' Stevens said.
The central bank's move came as world stock markets plunged again yesterday as the global financial crisis deepened, with governments taking emergency measures to shore up confidence but failing to stem the panic. New York's Dow Jones Industrial Average fall below 10,000 points for the first time since 2004. London's FTSE suffered its worst one day fall ever, while Dublin's ISEQ index dived almost 10%.
In Washington, Treasury officials said they would act quickly to implement a massive bailout plan for the financial sector, seeking bids by tomorrow to manage the troubled mortgage-related assets at the root of the crisis.
The US Federal Reserve and Treasury said they were studying the possibility of making unsecured loans in an effort to keep much-needed credit flowing.
In Europe, finance ministers were to begin preparing their first joint measure today to reassure nervous savers by ramping up minimum bank deposit guarantees. In a joint declaration yesterday they pledged to protect the stability of financial institutions by providing 'liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes.'
