Australia cuts key rate by 25 bps to 3% on global outlook

Tuesday 7th April 2009

The Reserve Bank of Australia cut its benchmark interest rate by a quarter point to 3%, saying there's evidence that the global economic contraction continued into the first few months of 2009.

The RBA lowered the overnight cash rate target to the lowest in 49 years to aid a domestic economy that probably slid into its first recession since 1991. Most economists expected no change in rates and the Australian dollar climbed to 71.32 U.S. cents after the statement from 70.94 cents immediately before it was released. The New Zealand dollar fell to 81.56 Australian cents from 82.06 cents after the move, which left the two nations' benchmark rates level pegging.

"Conditions in global financial markets have continued to improve gradually, helped by progress towards a resolution of banking system difficulties in the U.S. and other major countries," Assistant Governor Malcolm Edey said in a statement. Still, "sentiment remains fragile," he said.

The central bank had judged there was scope for a "modest adjustment to the cash rate," Edey said. Monetary policy, combined with "substantial fiscal initiatives" will provide significant support to domestic demand. Meantime, inflation over the medium term "is likely to be lower than it has been over the past two years," he said.

The RBA is predicting the Australian economy will contract this year though "by less than those of its trading partners," Edey said.

Businesswire.co.nz

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