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RBA cuts rates for second month in a row

Reserve Bank lowers interest rate to 4.25 percent, citing "considerable turbulence" in financial markets and subdued economic growth

December 6, 2011

The Reserve Bank of Australia has cut the interest rate for the second month in a row amid warnings of “considerable turbulence” in financial markets and subdued economic growth.

The RBA lowered the rate to 4.25 percent at its meeting today, with Governor Glenn Stevens saying global economic growth has weakened after a strong performance in 2010.

He says the ongoing problems in Europe are starting to affect trade in Asia but that a decline in commodity prices has taken some pressure off inflation.

“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe,” Stevens says.

“This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased.”

Domestically, Stevens says the Australian economy is running close to trend but terms of trade have peaked and will begin to decline in the near term.

“Moreover, with labour market conditions now softer, the likelihood of a significant acceleration in labour costs outside the resources and related sectors in the near term has lessened,” he says.

The federal Opposition’s spokesman on small business, Bruce Billson, says the banks should immediately pass on any rate cut to business.

Billson says some business borrowers had to wait more than a week for last month’s rate cut to flow through, while households received a reprieve within two hours of the RBA’s decision.

“Cutting rates for small business is just as important as cutting home loan rates in order to stimulate and support the engine room of the economy,” he says.

“It’s hard enough for small businesses to expand in the current economic climate without having to deal with higher than necessary lending costs.”

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