Fed cuts discount rate by 25 bps to 3.25%

Excerpts from Power Breakfast on CNBC-TV18 Watch the full show » Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

It's a move by the Fed that hasn't been seen since the Great Depression. It's the biggest sign yet of how devastating the credit crisis is for Wall Street. The US Federal Reserve has cut the discount rate it charges on direct loans to banks. It has also announced a new program to lend directly to Wall Street dealers.

The U.S. Federal Reserve has cut the discount rate by 25 basis points from 3.5 percent to 3.25 percent effective immediately. 

The Central Bank also extended the maximum term of discount-window loans to 90 days from 30 days. The Fed, in a statement said that the moves were designed to bolster market liquidity and promote orderly market functioning. 

US stock Index Futures rose after the unexpected rate cut, on the back of the news the US dollar edged higher against the Yen. 

The US Federal Reserve is trying hard to keep the credit market crisis in check.

On Sunday, in yet another emergency move, the Fed stepped in with 25 basis point discount rate cut, bringing the rate to 3.25 percent. It also announced a new lending facility designed ''to improve the ability of primary dealers to provide financing to participants in securitization markets.'' The interest charged in this lending facility will be at the discount rate. 

 

"It is for certain that we are in challenging times. But another thing is for certain, that we have taken strong and decisive action. The Federal Reserve has moved quickly to bring order to the financial markets. Treasury Secretary Henry Paulson is supportive of that action as I am. He has shown the country and the world that the United States is on top of the situation. Secondly, he has reaffirmed the fact that our financial institutions are strong and capital markets are functioning efficiently and effectively. We obviously will continue to monitor the situation. When need be, we will act decisively and in a way that continues to bring order to the financial markets. In the long run, our economy is going to be fine. Right now, we are dealing with a difficult situation," said George Bush , US President.