The Federal Reserve has lowered its projection for economic growth this year, spurring fears that the economy could continue to weaken despite January's interest rate cuts, Wednesday, Feb. 20, 2008. (AP / CBS)
SEOUL, South Korea - South Korea, Taiwan and Hong Kong all slashed interest rates Thursday, joining in a chorus of cuts by central banks around the world aimed at fighting the global financial crisis.
The moves follow Wednesday's coordinated rate reductions led by the U.S. Federal Reserve and the European Central Bank. China's central bank also cut rates Wednesday, thought did not say if it was part of the joint action.
Investors generally cheered the moves, although stock market gains faded as trading progressed and investors reassessed the severe strains on credit markets.
Hong Kong's benchmark index rose 3.5 percent and South Korea's index edged up 0.6 percent after earlier rising as much as 2.9 percent. Markets in Taiwan and Japan, up initially, fell into negative territory by day's end.
The coordinated reductions this week will not provide a quick fix to the crisis, according to one economist.
"The effects of the global rate cuts are expected to be positive, but will take time to flow through to the economy and financial markets," Sherman Chan of Moody's Economy.com wrote in a note Thursday. "A sharp rebound in market conditions is highly unlikely — improvement will come only at a slow pace."
Citing dangers related to the financial crisis that has spread from the U.S. to Europe and beyond, the Bank of Korea cut its key seven-day repurchase rate by a quarter percentage point to 5 percent.
"The downside risk to economic growth has increased, largely due to the international financial market unrest and global economic slowdown," the bank said in a statement. It added that the cut "should contribute to soothing the financial market turmoil and to avoiding a severe contraction of economic activity."
It was the Bank of Korea's first rate cut since November 2004, and comes despite a drop in the South Korean won to 10-year lows. Just two months ago, the bank had raised rates to combat accelerating inflation.
Seoul's benchmark Korea Composite Stock Price Index rose as much as 2.9 percent after the announcement, but pared gains to close 0.6 percent higher at 1,294.89.
In Hong Kong, the region's de facto central bank cut its benchmark interest rate for a second day in a bid to boost investor confidence, matching the overnight cut by the Fed. The Hong Kong Monetary Authority cut its key base rate by half a point to 2 percent, a day after it lowered it by a full percentage point.
"The coordinated rate cuts by global central banks is unprecedented and that reflected the seriousness of the financial crisis of this century," said HKMA Chief Executive Joseph Yam, referring to the reductions of half a percentage point by the Fed, the ECB, the Bank of England and others.
And in Taipei, Taiwan's Central Bank said it was cutting its key interest rate for the second time in two weeks, amid slowing economic growth.
The cut on the 10-day loan rate to 3.25 percent from 3.5 percent came because Taiwan's exports have declined while consumer and investment expenditures dropped, the central bank said.
"Our economy has come under pressure for a slowdown," Gov. Perng Fai-nan said. "We hope the rate cut can stimulate consumption to spur economic growth."
The announcement helped to stabilize the Taiwan stock market early Thursday after the benchmark index fell 9.3 percent in the last three trading days in the wake of the financial crisis in the U.S. and Europe. Stocks were trading 1.5 percent lower in the afternoon.
The moves follow a full point rate cut by Australia on Tuesday and China's move Wednesday to reduce the rate on a one-year loan by 0.27 percentage point to 6.93 percent, its second cut in less than a month.
The Bank of Japan left its key rate unchanged at 0.5 percent, but said it supported the coordinated rate cuts led by the Fed.