NEW DELHI: In what appeared to be a coordinated step to reduce coronavirus' impact on world economy, the US Fed on Tuesday cut interest rate by half a percentage point to a range of 1-1.25 per cent.
Earlier in the day, the Group of Seven (G7) countries - Canada, France, Germany, Italy, Japan, the UK and the US - held an emergency meeting and decided "to use all appropriate tools to achieve strong, sustainable growth and safeguard downside risks (from Covid-19 outbreak)".
The US Fed’s move also comes hours after President Donald Trump urged it to take a cue from Australian central bank, which early in the day cut interest rates to a record low of 0.5 per cent to contain the economic fallout from the epidemic.
This is the Fed’s biggest cut since the 2008 financial crisis. This is also the first time it is admitting coronavirus could hit world economy. "The coronavirus poses evolving risks to economic activity," the Fed said.
Central banks tend to address economic downturn by cutting rates. Lower rates make loans cheaper and encourage people to borrow and spend money, thereby boosting economic activity.