RBA cuts interest rates by 0.25pc

Subdued confidence outside the resources sector sees the RBA Board lower the official cash rate to 4.5pc

RBA cuts interest rates by 0.25pc
RBA cuts interest rates by 0.25pc

November 1, 2011

Subdued confidence outside the resources sector has seen the Reserve Bank of Australia (RBA) Board lower the official cash rate by 25 basis points to 4.5 percent – its first reduction since April 2009.

RBA Governor Glenn Stevens says while Australia’s strong terms of trade has seen increased investment in the resources sector, households remain cautious.

"After underlying inflation started to pick up in the first half of the year, recent information suggests the subdued demand conditions and the high exchange rate have contained inflation more recently, notwithstanding continuing sizeable increases in utilities charges," Stevens says.

In light of overall moderate growth, he says the RBA Board concluded that a more neutral stance of monetary policy would now be consistent with achieving between 2-3 percent inflation over time.

On a global scale, Stevens says that although the pace of US economic expansion picked up in the September quarter, growth remains moderate.

China's growth has slowed, while output in Asia has now recovered from the effects of the Japanese earthquake.

"Trade performance, however, is starting to see some effects of a significant slowing in economic activity in Europe, where the prospects are for economic weakness to continue," Stevens says.

"Commodity prices, while still at high levels, have generally declined over recent months," he says.

According to Stevens, it will likely be some time yet before concerns about the European situation can definitively be laid to rest.

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