Tokyo's Nikkei 225 index sank nearly 5% to 11,609.72, its lowest close since July 2005. Hong Kong's Hang Seng Index shed 5.4% to its lowest point in nearly two years. In Seoul shares closed 6.1% lower while the South Korean currency, the won, fell 4.3% against the dollar, its biggest daily drop in a decade.
Chinese market fell by around 4% or more with Shanghai off 93 points, or 4.4% to under the 2,000 mark for the first time since 2006. It closed around 1986. All four countries had been closed Monday when Lehman Brothers collapsed.
The Bank of Japan pumped $US24 billion into the economy, South Korea provided unspecified levels of assistance via the central bank and the Taiwanese Government asked investment funds and banks to buy shares to halt a tumbling market. The country's central bank also injected $US3.5 billion The Reserve Bank added about $A1.3 billion to our money markets for a second successive day yesterday. Australia market was down just over 1.4% after a late rally yesterday.
Important and confidence sapping as these were, the most significant move though came late Monday evening as China's central bank cut key lending rates by 0.27% and lowered the reserve asset ratio by 1% for small and medium institutions.
That had nothing to do with the turmoil in markets and everything to do with trying to keep the Chinese economy on track and growing strongly. It was the first cut in six years since February 2002 (echoes of Australia and the Reserve Bank's rate cut earlier this month which was the first here for almost 7 years).
The cut dropped the cost of one-year bank loans to 7.20%, while deposit rates remain unchanged with the one-year rate at 4.14%. The People's Bank of China also cut the reserve requirement for all except the country's five biggest banks and the Postal Savings Bank by one percentage point.
More important perhaps, it is the first time that the central bank has lowered the proportion of deposits that lenders must hold in reserve (the reserve ratio) since November 1999.
The rate cut took effect from yesterday and the cut in reserve requirements from September 25. The central bank said the moves were aimed at maintaining fast and stable economic growth.
Bloomberg reported the bank as saying in its statement that the cut was made "to help solve important problems in our economy for its continued stable and fast development". It was another move to free up credit to try and get borrowers to lend more. The central bank had boosted the reserve asset ratio 18 times in two years to June of this year. But interest rates had not risen this year.
In July, the central bank cut restrictions on how much banks can lend by raising 2008 loan quotas for national banks by 5% and regional lenders by 10%; the Government also changed export tariffs on clothing and textiles to try and encourage exports.
In reality these moves are aimed at stopping the slowing in growth that has been evidenced all year. It's another reminder that central banks do not cut rates and change quantitative prudential controls to slow an economy: it is done to boost or to try and maintain a certain pace of growth.
Helping the central bank towards this decision was the drop in consumer price inflation in August to 4.9% annual from the 6.3% annual rate in July. The news didn't really help the Chinese stockmarket, which lost more than 4% yesterday.
The market is now down more than 65% since hitting a record high last October. The cut came a couple of days after China reported last Friday that annual industrial output growth fell to a six-year low in August.
That was as much due to the impact of industry around Beijing (in a 300 kilometre radius) being closed or put on restricted hours during the summer Olympics and the Para Olympics, which finish this week. The National Bureau of Statistics said on Friday that industrial production grew 12.8% in the year to August, well down from July's 14.7%.
