Mumbai: The US Federal Reserve has cut the discount rate governing direct Fed loans to banks by a half-percentage point in a surprise move aimed at keeping credit flowing and calming jittery global markets.

The reduction brought the primary discount down rate to 5.75 per cent from 6.25 per cent. The federal funds rate remains at 5.25 per cent.

While the move will have no effect on the benchmark federal funds rate - the Fed's main economic policy lever - the central bank said downside risks to growth had increased "appreciably."

The move could lower the cost of capital for banks and help keep credit flowing through the economy at a time when investors have shown a greater reluctance to lend.
The Fed also said it would allow its regional banks to provide term financing for as long as 30 days.