RBA Holds Fire Amid Global Market MeltDown (Australia)

The Australian ^ | 8-10-2007 | David Uren

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RBA holds fire amid global market melt-Down

David Uren Economics correspondent
August 10, 2007

THE Reserve Bank will not intervene to support credit markets following extraordinary turmoil in world markets overnight.

The European Central Bank made an emergency injection of €95 billion ($150 billion) into money markets and while the US Federal Reserve pumped $US24 billion ($28 billion) into US markets to ensure there was enough money to keep the financial system liquid.

A spokesman for the Reserve Bank said this-morning that the bank was proceeding with normal dealing operations and would not be making a statement about the market conditions.

The Australian stock market opened sharply lower, mirroring falls on Wall Street last night after French bank BNP Paribas froze three funds that had invested in US sub-prime mortgages.

In early trade the benchmark S&P/ASX200 index had fallen by 163.8 points or 2.66 per cent to 6001.8 while the All Ordinaries dropped 165.3 points or 2.67 per cent to 6022.4.

On the Sydney Futures Exchange, the September share price index contract had lost 166 points to 5985 on a volume of 11,392 contracts.

In the US, evidence that the sub-prime crisis is having a global impact and spreading to other markets, hammered financial stocks.

The US Down Jones index plunged 2.8 per cent, the FTSE100 in the United Kingdom fell 1.8 per cent and Germany’s DAX index dropped 2 per cent.

Markets were particularly shocked by the size of the ECB intervention, which has traditionally been reluctant to support markets for fear of encouraging reckless lending practices. Its market support was far in excess of the funds made available in the wake of the September 11 attacks.