Australia slashed interest rates and the Bank of Japan moved to ease an acute cash crunch for companies, kicking off another round of global central bank action to soothe markets and shore up crumbling economies.
Britain, the euro zone and New Zealand will almost certainly cut interest rates later this week. In addition to more rate cuts, the Federal Reserve is weighing other responses with its benchmark rate nearing zero and the US economy now officially in recession.
Asian stocks tumbled, tracking slides in Europe and on Wall Street, and US government bond yields collapsed to half-century lows, as fear about the economic outlook gripped investors.
The arbiter of US economic cycles confirmed some of those fears overnight, saying the US economy was in the third-longest recession since the Great Depression.
The Reserve Bank of Australia (RBA) cited the perilous state of the global economy when it cut the benchmark cash rate by a full percentage point to 4.25 per cent, a bigger margin than most analysts had forecast. It left the door open to more cuts.
"The economy is poised on a knife edge and the RBA is going to keep cutting until it starts to get traction with consumers and housing," said Macquarie senior economist Brian Redican.
The Bank of Japan decided to keep its benchmark unchanged at an emergency meeting called to deal with a cash squeeze on Japanese companies, facing slumping export markets and an economy that appears to be on course for it longest contraction ever.
The central bank temporarily broadened the range of collateral it would accept to include triple-B-rated corporate debt for loans of up to three months. That would help cash starved firms get through the year-end funding squeeze.
Liquidity is usually tight near year-end and investors are bracing for an even greater squeeze this year after a credit crisis triggered by US mortgage defaults destroyed banks from Wall Street to Iceland.
"Given an increasingly tight funding environment ahead of the end of the year, it is appropriate for the B0J to introduce such a special lending facility," said Yasuhiko Onakado, chief economist with Daiwa SB Investments in Tokyo.
"Having said so, I also feel that the BOJ could have introduced such a scheme at a more appropriate time, or that the decision fell behind the curve."
The mutating financial crisis has piled pressure on policymakers to ramp up their response, including massive interest rate cuts by the world's major central banks.
The Bank of Japan has less room to manoeuvre with its benchmark at 0.3 per cent and the Fed may soon find itself in the same situation as its policy rate falls below the current 1 per cent.
Reuters