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RBA slashes rate to 4.25pc

RBA cuts the interest rate by another100 basis points to 4.25 percent in an effort to boost the economy

The Reserve Bank of Australia (RBA) has cut the interest rate by another 100 basis points to 4.25 percent in an effort to boost the economy.

In a statement, the RBA says recent actions by governments and central banks have helped to offset the impact of the global economic downturn, but the financial market “remains fragile”.

Despite Australia largely remaining unscathed by the crisis, the RBA expects there will be a massive drop in demand and activity.

“With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term,” the statement says.

“Weighing up the international and domestic developments of recent months, the board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting.”

The RBA expects the latest cut, combined with Rudd Government’s stimulus package and a fall in the Australian dollar, to increase demand next year.

But it says evidence continues to show a significant slowing in major and emerging countries, as well as a drop in commodity prices.

“This, combined with the likelihood of below-trend growth in the global economy, suggests that global inflation will moderate significantly in 2009,” the statement says.

But while it expects a drop in inflation, the RBA says the weak exchange rate means a decline will happen slowly.

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