Australia is hardly a giant on the world financial scene, prosperous island that it is, but by cutting interest rates by a full point this morning it just may have provided a steer for other central banks, dithering over how much they can cut rates.
Aussie rates were at seven per cent so they had plenty of room for a big cut (and similar big cuts in the US didn’t solve the banking crisis) but Europe is now the focus of attention and the notoriously conservative European Central Bank and Bank of England like to cut in quarter points.
But the only thing that will get stock markets moving up again are big rate cuts. Until this happens there is no way banks will start lending to each other or indeed anyone else. When their share prices are tanking they hang on to what money they have in case they become the next bank to have a run on deposits.
Yesterday (Monday) banks led the markets down with the US Dow Jones down eight per cent at one stage (a record) although it rallied to close 3.6 per cent down. The London FTSE100 fell 7.8 per cent and the Paris CAC 40 by 9.1 per cent.
A one per cent cut by the BofE and the ECB would be just what the doctor ordered. Will they be brave enough?