Central bankers on both sides of the Atlantic have slashed interest rates in an unprecedented bid to restore calm to world markets and boost consumer confidence in the wake of the terrorist attacks on the US last week.
The US Federal Reserve, followed three hours later by the European Central Bank, cut interest rates by half a percentage point as US markets on Wall Street opened their doors for the first time since the attacks on the World Trade Centre and Washington last Tuesday.
The two biggest central banks in the world have been co-operating closely in the aftershock of the attacks, pouring billions into the markets to help stabilise markets.
The concerted rate cuts surprised some in the markets as the ECB has never before moved interest rates between its regular monthly meetings. It was also the first time the ECB so obviously acted in a concerted manner with another central bank.
"Following the terrorist attacks on the US, uncertainty about the US and the world economy has increased," the ECB said in a statement.
Both banks were keen to emphasise their readiness to take urgent action to stabilise the economy and financial markets. The Fed has now cut rates by three percentage points this year to 3 per cent while the ECB has cut rates by one percentage point to 3.75 per cent.
The moves boosted confidence in financial markets across the world and will also give a boost to homeowners as mortgage rates fall further. The Bank of Canada and the Swiss National Bank also cut interest rates in the unprecedented coordinated move.
The moves led to some volatility on currency markets.. The euro was worth $0.9206 in late trading, having soared to a six-month high point of $0.9331 in early trading only to slump to $0.9190 before the ECB cut was announced.
The Fed's cut came an hour before the stock exchanges resumed business in New York after a four-day closure, the longest since the Great Depression.
The world was watching the opening of the markets closely to see whether investors would sell heavily following last week's attacks. The ECB followed a little later at about 4.20pm local time.
However, analysts warned that the moves will not be enough to stave off almost inevitable recession in the US this year.
Mr Oliver Mangan, economist at AIB, said the US was now likely to be in recession until the Spring of 2002. But he added that the cuts should be enough to boost growth heading into the summer.
Mr Aziz McMahon, economist at Ulster Bank, said the move should be enough to skirt recession in Europe.
But according to Dr Dan McLaughlin, chief economist at Bank of Ireland, the US will be in recession at the end of the year and growth next year is likely to be revised dramatically downwards towards 1 per cent.
In the statement accompanying its announcement, the Fed said the US economy had been shaky even before last week's attacks and was at greater risk now, saying "last week's events have the potential to damp spending further."
