More room to cut rates for RBA

Friday 20th February 2009

The Reserve Bank of Australia has room to cut interest rates from a 45-year low to underpin the economy in the face of a global slump, according to Governor Glenn Stevens.

Stevens told the parliament's economics committee today in Canberra the central bank has "scope to do more, if more is needed," Bloomberg reported. Further rate cuts will provide a "powerful" stimulus to the economy, he said.

The central bank has slashed its cash rate target by 3.75 percentage points to 3.25%, starting in September, while the government has announced plans to spend A$42 billion on infrastructure projects and low income benefits to help underpin an economy that's so far skirted recession.

Australia "cannot realistically expect other than weak conditions in the first part of 2009," Stevens said. "But the very large reduction in interest rates, the lower exchange rate and the major fiscal initiatives will work to support demand, increasingly so as the year goes on."

Stevens said Australia has "done well' compared with most other countries and is well positioned to ride out the global recession.

The central bank is forecasting gross domestic product will expand 0.5% this calendar year.

By Jonathan Underhill

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