PARIS - THE Bank of Japan's (BOJ) first interest rate cut in seven years ended a week of reductions that spanned the globe from Beijing to Washington, with more to come next week in Europe and Australia.

The Japanese central bank's action followed the Federal Reserve's decision two days ago to reduce US borrowing costs to match the lowest level in a half-century.

China pared its benchmark rate for a third time in two months, while central banks in Norway, Slovakia, South Korea, Taiwan, Israel and across the Middle East also eased credit.

Policy makers are fighting to avert a prolonged recession in the global economy as the credit crisis enters its 15th month and spreads beyond industrial countries. Officials are signalling more cuts from the European Central Bank (ECB) and Bank of England Nov 6.

'This was the week central banks got shocked into action,' said Mr Stuart Thomson, who helps oversee US$46 billion (S$68.2 million) in bonds at Resolution Investment Management in Glasgow, Scotland.

'They have been surprised by the sudden slump in economic activity, but still have a long way to cut.'

Bank of Japan Governor Masaaki Shirakawa on Saturday cast the deciding vote to reduce the key overnight lending rate to 0.3 per cent, the lowest in the industrial world, from 0.5 per cent.

Mr Shirakawa acted after Japan's Nikkei 225 Stock Average this week slumped to its lowest level since 1982.

The central bank slashed its growth forecast for the year ending in March to 0.1 per cent from 1.2 per cent predicted in July, and may even bring interest rates to zero as it promised to promote 'accommodative financial conditions'.

Fed Chairman Ben Bernanke and his colleagues are also signaling they may cut their benchmark rate further after lowering it to 1 per cent as 'downside risks to growth remain'.

The economy contracted by the most since 2001 in the third quarter and Fed Bank of San Francisco President Janet Yellen said on Oct 30 that rates may head to zero if economic pain persists.

'We could, potentially, go a little bit lower than' 1 per cent, Ms Yellen said in Berkeley, California.

'We would do it because we are concerned about weakness in the economy.'

The financial crisis this month spread from industrial economies such as the US and Japan to engulf emerging markets that had been the world economy's last remaining source of strength.

Now, policy makers in those economies are easing monetary policy too.

The People's Bank of China on Oct 29 reduced its one-year lending rate after economic growth slowed to 9 per cent in the third quarter from 11.9 per cent in 2007 as export markets shrank.

Elsewhere in Asia, South Korea slashed its rates by a record 75 basis points in an emergency shift and rates also fell in Taiwan and Hong Kong.

Oil-producing nations are also resorting to lower interest rates after the price of crude dropped by half from a July record of US$147.27 per barrel.

Norway's central bank cut its benchmark interest rate by a half-percentage point for the second time this month.

Saudi Arabia, Kuwait and Bahrain, which tend to shift their interest rates in line with the US to maintain currency pegs to the dollar, also followed the Fed in cutting.

Not all central banks are easing. Iceland's this week unexpectedly raised its main rate to 18 per cent, the highest in at least seven years, as it battles a currency crisis and possible hyperinflation with the help of the International Monetary Fund.

Central banks are going beyond interest-rate policy to confront the unprecedented crisis with unconventional measures.

The Fed on Oct 29 agreed to provide US$30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore to unfreeze money markets, the first time it has extended such measures to emerging nations.

Meantime, the European Central Bank gave Denmark access to 12 billion euros (S$22.6 billion).

Economists forecast that the onset of a recession in Europe will force the ECB and the Bank of England to lower their benchmark rates on Nov 6 by a half-point to 3.25 per cent and 4 per cent respectively.

Both will cut to 2.5 per cent by the middle of next year, according to median forecasts in two surveys. That would be the fastest pace of easing in the ECB's history.

'If the economy cools, then rates have to come down rapidly so one doesn't risk falling behind the curve,' ECB council member Axel Weber said on Oct 30.

Bank of England policy maker David Blanchflower said Oct 29 that rates must fall soon and 'significantly' to stave off the threat of deflation.

Australia's central bank may also cut rates on Nov 4, after having cut borrowing costs by 1 percentage point to 6 per cent this month, the biggest reduction since 1992.

At JPMorgan Chase, economists are predicting their global interest rate measure will fall to 2.16 per cent next year, the lowest since it was first devised in the mid 1990s, from 3.21 per cent yesterday.

They estimate the global economy will contract in the current and subsequent quarters.

'Rate cuts are going to be pretty broad,' said Mr Joseph Lupton, an economist at JPMorgan who previously worked at the Fed.

'The idea has solidified pretty sharply that the world economy is going to fall pretty hard here and some good old- fashioned monetary easing is in order.' -- AFP