Australia's central bank kept its interest rates steady on Tuesday, encouraged by signs of the economy's resilience to the deepening global crisis that battered financial markets and left many companies fighting for survival.
With most of the world's major economies sinking ever deeper into recession and policy-makers running out of ammunition with policy rates quickly approaching zero and fiscal spending already at record highs, Australia looks comfortable by comparison.
Its economy has yet to contract and the central bank still has room for manoeuvre with its main cash rate at 3.25 percent, though markets see a clear threat of recession and expect rates to come down further.
"It is an affirmation by the central bank that Australia is doing comparatively well, compared with others," said John Edwards, chief economist at HSBC for Australia and New Zealand.
By contrast, the Bank of England may already decide this week to start buying assets with newly created money to supply more funds to an economy mired in its deepest slump since 1980.
Analysts expect the central bank to halve its benchmark rate to 0.5 percent on Thursday and then agree on a first instalment of quantitative easing, a policy of pumping unlimited funds into the economy when rates are already close to zero.
"We've given them the levers," finance minister Alistair Darling told the Daily Telegraph newspaper. "They may decide this month that it's appropriate to do so."
UNCONVENTIONAL METHODS
The European Central Bank is also expected to shave half a point off its benchmark to a record low of 1.5 percent on Thursday and is also seen considering more unconventional ways of reviving lending.
Governments and central banks around the world have struggled to get funds flowing to companies as banks, hammered by investments in toxic debt linked to U.S. mortgages and rising bad debts, restricted lending in a desperate effort to conserve cash.
Japan, where policy rates are already near zero, said on Tuesday it would lend $5 billion from its hefty foreign reserves to a state-backed bank charged with funnelling funds to companies in trouble.
State Japanese TV reported that Toyota Motor Corp. financial services was among the first to tap the bank, seeking about $2 billion in loans to help it deal with rising credit costs in the United States.
Highlighting the dire state of the global financial sector, U.S. insurance giant AIG reported a record $61.7 billion quarterly loss on Monday and secured a $30 billion U.S. government lifeline.
HSBC, Europe's biggest bank, asked its shareholders for a $18 billion cash injection to repair its balance sheet in a heavily discounted rights issue. Its shares opened down 19 percent in Hong Kong on Tuesday, matching a similar fall in London.
The shock AIG loss, and fears that a third government lifeline in five months may not be the last, knocked U.S. stocks to their lowest levels since the 1990s and initially pushed Asian stocks to multi-month lows on Tuesday.
However, markets trimmed losses in mid-day trade, as investors began picking up some beaten-down shares such as Sony Corp.
The Australian dollar rose half a U.S. cent and Sydney stocks also bounced off a five-year low after markets took the central bank's decision to pause after 400 basis points of easing as a vote of confidence in the economy.
"It is a sign that our economy is pretty robust," said Michael Heffernan, strategist for broker Austock Group.
But Australia remained a rare bright spot amid a deepening economic gloom.
Markets brushed aside a 0.6 percent rise in U.S. consumer spending in January and a slowdown in U.S. manufacturing contraction in February as mere blips in a rapidly deteriorating economy.
The International Monetary Fund said it was likely to cut its global 2009 economic forecast into negative territory.
Canada and Italy reported economic contraction in the fourth quarter and the whole of 2008 respectively, France conceded that its economy was set to shrink this year, while Switzerland is set to report negative fourth quarter numbers later on Tuesday.
And in yet another sign that once-booming eastern Europe was now deep in the throes of the global crisis, Romania held talks with the International Monetary Fund, possibly a prelude to an aid deal that would make it the third European Union member to seek IMF help.
