The Reserve Bank has cut official interest rates by 0.25% to 3% in a bid to further cushion the Australian economy from the looming recession.
Economists were divided as to whether the RBA would cut rates this month or wait for an expected surge in unemployment in the coming months.
The RBA has now cut rates from 7.25% at the start of September, but RBA Glenn Stevens said in a statement that the economy requires further support.
“Conditions in global financial markets have continued to improve gradually, helped by progress towards a resolution of banking system difficulties in the United States and other major countries. Sentiment remains fragile, however, and the contraction in economic activity is affecting asset quality of financial institutions.
“The Board judged that there was scope for a further modest adjustment to the cash rate. The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead.”
The decision will increase the political pressure mounting on Australia’s banks over their willingness to pass on further cuts in offical rates.
Westpac chief executive Gail Kelly had warned yesterday that increases in the cost of wholesale funding could make it difficult to pass on any cut, but Federal Treasurer Wayne Swan was unmoved.
“We do acknowledge there are a complex set of factors out there and funding costs have been bouncing around, but we would certainly like to see official rate cuts passed on as soon as possible.”
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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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