US Federal Reserve cut key interest rate by 75 basis points (0.75%) on Tuesday.

The US Federal Open Market Committee on Tuesday slashed a key interest rate by 75 basis points (0.75 per cent) to 3-1/2 per cent.

The US dollar, however, fell against other currencies following the rate cut.

In a statement, the US Fed said that "the committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.'

"The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.'

"Appreciable downside risks to growth remain,' the statement said. "The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.'

"Voting for the FOMC monetary policy action were: Ben S Bernanke, chairman; Timothy F. Geithner, vice chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin,' the statement said.

'In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis,' the statement added.