Australia cut interest rates more than expected this morning, presaging likely cuts in Europe later this week in the face of evidence that the global financial crisis has already pushed much of the world into a recession.
The 75 basis point cut from 6 per cent to 5.25 per cent followed rate cuts in the United States, China and Japan last week. Britain and the euro zone were expected to follow suit on Thursday with half point reductions in borrowing costs.
But the recession that central banks and governments around the world have tried to ward off loomed ever larger as investors digested a batch of bleak corporate results and dismal economic data.
With the US presidential campaign wrapping up today after nearly two years, markets expected some temporary relief for equities from the elimination of one source of uncertainty.
Indeed, fears about the shrivelling US economy knocked stock markets today, with Asia-Pacific stocks falling by 1.9 per cent. The one exception was Japan's Nikkei index, up nearly 4 percent, as exporters gained on the yen's recent weakness.
The latest gloomy note came from the Australian central bank, which said there was "significant weakness" in major industrial economies in explaining why it cut rates to 5.25 per cent, the lowest since March 2005.
"A growing number of indicators have fallen off a cliff in October," said Rory Robertson, interest rate strategist at Macquarie in Sydney.
"Indeed, each of the big developed economies now is either in a severe recession or well on the way," he said.
Reuters