As the global financial crisis grips the nation, the Reserve Bank of Australia (RBA) has taken swift steps to stabilise the economy, reducing interest rates by a further 100 basis points, taking the cash rate down to 3.25 percent.
RBA Governor Glenn Stevens believes that the reduction in the cash rate was appropriate to give further support to demand.
“While Australia’s financial system remains in a strong condition… the combination of the 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.”
The rate cut comes just hours after the Federal Government announced a $42 billion stimulus plan aimed at keeping the economy out of a recession. Stevens said that these measures will take the pressure off home owners and help to cushion the Australian economy.
“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.”
Analysts predict that this will not be the end of the cuts, but future cuts will be smaller.
“We’ve just been through the most aggressive phase any of us have ever seen in terms of RBA rate cuts,” said Macquarie Bank spokesperson Rory Robertson, an interest rates strategist. “I think the Reserve Bank now will be moving in smaller lots, and the rate cuts will probably be more spaced out given the unprecedented size of the response so far.”
Critics of the Reserve Bank, including some State Premiers, believe the high rates maintained during most of 2008 have contributed to the current economic climate in Australia.