US Fed Reserve slashes interest by half pc

New Delhi: A worried US Federal Reserve slashed interest rates by half per cent on Wednesday to support the faltering US economy.

This is a departure from the Fed Reserve's earlier stand that lowering rates would have little effect in boosting economic activity while credit markets are frozen.

It's not just the US that has cut rates. The European Central Bank's main rate is now 3.75 per cent, Canada's fell to 2.5 per cent, the UK's rate dropped to 4.5 per cent, Sweden's rate declined to 4.25 per cent.

China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 per cent.

All the Central banks including the Reserve Bank of India are cutting rates to avoid liquidity crunch. At 1.50 per cent, the federal funds rate is at its lowest level since 2004.

US stocks extended losses on Tuesday, with the Nasdaq and the S&P 500 briefly falling more than 3 per cent, after Federal Reserve Chairman, Ben Bernanke, cautioned that downside risks to economic growth have worsened, though he signaled a readiness to lower interest rates.

The market had already been sharply lower before Bernanke's comments, on concerns about the widening credit crisis.

Given a mix of recent weak economic data and a worsening outlook for growth, the Fed "will need to consider whether the current stance of policy remains appropriate," Bernanke had told the National Association for Business Economics on Tuesday.

The comments had electrified short-term interest rate futures markets, where dealers piled on new bets that the Fed will cut its benchmark lending rate to 1.25 percent this month from the current 2 percent.

Meanwhile, the Indian rupee too is sinking with local stock markets.

The rupee on Wednesday declined and reached a six-year low of 48.72 against the US dollar, mainly driven down by rising demand from oil refiners for the greenback amid melting stock markets.

(With inputs from agencies)