The Hindu : Business : U.S. Fed steps in to check market crash

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Saturday, Aug 18, 2007
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U.S. Fed steps in to check market crash

India likely to benefit

MUMBAI: The U.S. Federal Reserve on Friday made a surprise rate cut for its direct lending to banks in a bid to control the ongoing rout in financial markets, leading to an immediate positive impact on the U.S. markets, which, analysts said, should extend to Indian markets when they reopen next week.

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board has approved a 50 basis point reduction in the primary credit rate to 5.75 per cent, to narrow the spread between the primary credit rate and the Federal Open Market Committee’s target federal funds rate to 50 basis points, the U.S. central bank said in a statement.

The statement came just before opening of the U.S. stock markets, leading to an immediate rise in the pre-open futures market, but markets in India had already closed. Brokers in Mumbai said that expectations were building up since the morning for a possible rate cut in the U.S., which led to a sharp recovery on domestic bourses. The final decision should further boost the markets when they resume trading on Monday, they added.

“Correction appears to be on its last leg and there can be a further correction of 400 to 500 points from the current level,” Motilal Oswal, Chairman of Motilal Oswal Financial, said. “It all depends on the U.S. stock markets. It is a black-box and how much deep it is nobody knows,” he added.

The benchmark Sensex, which plunged by nearly 578 points during the day, ended 216.69 points down at 14141.52, after touching a low of 13779.88. It had fell 642 points on Thursday.

“Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward,” Fed said in a statement.

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