Just hours after the Federal Government announced its $42 billion stimulus package, the Reserve Bank of Australia has provided another boost to the economy by cutting official interest rates by 1% to 3.25%.
It is the fifth consecutive rate cut since September, as the RBA has attempted to spark economic growth in the face of the looming recession. In the space of five months, the official cash rate has fallen from 7% to 3.25%, the lowest level in 40 years.
“Australia’s financial system remains in a strong condition and large interest rate reductions over recent months have been passed through in substantial measure to end borrowers. Nonetheless, the combination of last year’s financial turmoil, a severe global downturn and substantial falls in commodity prices has had a significant dampening effect on confidence, and therefore on prospects for growth in demand,” RBA Governor Glenn Stevens said in a statement.
“In these circumstances, the board judged that a further sizable reduction in the cash rate was appropriate, to give further support to demand. In making its decision, the board took into account the package of measures announced by the Government earlier today.”
Stevens also said inflation was under control and will continue to fall over the coming months, and expressed hope that the Australian economy would be somewhat insulated from the global financial crisis.
“The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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