Interest Rate Reduction!

US rates reduced for third time

The US Federal Reserve has cut interest rates from 4.5% to 4.25% in a bid to help the world's largest economy through a housing and credit woes.

It is the third rate cut in the US in as many months, leaving US rates 1% lower than their August peak.

A downward move had been expected, but US shares fell because some traders had hoped for a more aggressive rate cut.

The Fed also trimmed the rate at which it lends money to banks to help smooth out problems in the credit markets.

The Fed reduced its primary discount rate from 5% to 4.75% to encourage banks to borrow from it.

An increase in borrowing would in turn boost the amount of money in the financial system, making it easier for banks to borrow from each other.

Inter-bank lending charges have shot up recently amid suspicion over which banks are bearing undisclosed losses linked to investments in bad home loan debt.

The need to shore up capital reserves has also underpinned the credit freeze.

Source: BBC News