Australia cuts interest rates by 75 basis points

by Richard Kilner

Story link: Australia cuts interest rates by 75 basis points

The Reserve Bank of Australia has today decided to slash the cash rate by 75 basis points to just 5.25%.

The new rate will come into effect tomorrow, and has been chosen in the light of the continuing volatility in global financial markets.

The Australian dollar, like the British pound, has fallen significantly recently and global equity prices have also fallen.

However, the slowdown is not limited to advanced economies, with signs now emerging that the developing economies, including China, are now feeling the effects of the global economic difficulties.

Commodity prices across the world are also continuing to fall, reducing the inflationary pressure which had (until a few months ago) been a key factor in the thinking of central banks when choosing interest rates.

The effect of the economic situation will be less spending and activity in Australia than the Reserve Bank originally predicted, although the mid-term outlook for inflation is that it will ease away from its present peak of 5%.

The Reserve Bank is to retain its objective of reducing inflation to 2-3% in the mid-term, whilst enabling sustainable growth in the economy.