RBA slashes rates once again
(5 November 2008 – Australia) The Reserve Bank of Australia has announced that it will reduce the cash rate by 75 basis points to 5.25 percent.
Effective 5 November 2008, the rate reduction is the third consecutive rate decrease after the changes announced in both September and October.
The 75 basis point reduction takes the total reductions over the last three months to 200 basis points, or 2 percent. The 5.25 percent interest rate is the lowest level since the end of 2003.
RBA governor, Glenn Stevens, said that world financial markets have remained turbulent over the past month and highlighted the sharp decline in the Australian dollar.
He also said that recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence.
On balance, it appears likely that spending and activity will be weaker than earlier expected, he added.
While CPI inflation in year-ended terms picked up to 5 percent, capacity pressures are now easing and, given the outlook for more moderate growth in demand and activity, it is reasonable to expect that inflation in Australia will soon start to fall, he said.
The depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise be the case, Stevens said.
Weighing up these international and domestic developments, the Board judged that a further significant reduction in the cash rate was warranted.
The Board said that it will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2–3 percent inflation target over time.
The 75 basis point reduction takes the total reductions over the last three months to 200 basis points, or 2 percent. The 5.25 percent interest rate is the lowest level since the end of 2003.
RBA governor, Glenn Stevens, said that world financial markets have remained turbulent over the past month and highlighted the sharp decline in the Australian dollar.
He also said that recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence.
On balance, it appears likely that spending and activity will be weaker than earlier expected, he added.
While CPI inflation in year-ended terms picked up to 5 percent, capacity pressures are now easing and, given the outlook for more moderate growth in demand and activity, it is reasonable to expect that inflation in Australia will soon start to fall, he said.
The depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise be the case, Stevens said.
Weighing up these international and domestic developments, the Board judged that a further significant reduction in the cash rate was warranted.
The Board said that it will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2–3 percent inflation target over time.
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