All of a sudden the doom and gloom turns to cloudy with the sun peeking over the clouds. What gives? The key is in the highly surprising move by Reserve Bank of Australia. The Reserve Bank of Australia today slashed its official cash rate target by one percentage point to 6.00% in response to a cooling in the local economy and escalating fears of a protracted global recession.
The cut follows a one-quarter-of-a-percentage point easing in interest rates in September -- the first in seven years -- and comes as a credit crunch continues to choke the world's banking system. Economists had expected the RBA to cut rates following a meeting of the bank's board earlier Tuesday, with many placing bets that the pace of cuts would be accelerated as the crisis in global markets deepens.
The move was expected BUT not the size. A full 100bp is a major cut, more than the average 50bp that many were expecting. If you read between the lines, obviously the major central banks were on the phone feverishly last night on how to stem the loss of confidence. The 100bp was too obvious, it should be the start of a major concerted move to massively cut rates by major central banks. We should expect a surprising cut by ECB tonight, and maybe more from other central banks to come.
Is it time to buy? Well, maybe a little for a quick trade as it is very hard to go against an organised mafia financial move. Cheers!!!
p/s photo: Ellen Adarna
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