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RBA cuts official cash rate by 0.5 percent, in effort to stimulate growth

The Reserve Bank of Australia (RBA) has cut the official interest rate by 0.5 percent to 3.75 percent, citing weakened economic conditions and moderate inflation as the drivers behind its decision.

Many analysts were expecting the RBA to cut the official rate by just 25 basis points today, as it did in November and December last year, but it said it believes current financial conditions need to easier than those “which prevailed in December.”

“Growth in the world economy slowed in the second half of 2011, and is likely to continue at a below-trend pace this year,” RBA Governor Glenn Stevens said.

He said growth was moderate in China and the US and soft in other areas of Asia due to natural disasters, while conditions in Europe remained difficult

Stevens also said underlying and CPI inflation have both declined, and are likely to be lower than previously expected over the coming two years.

Interest rates were last this low in 2009, during the Global Financial Crisis, when the RBA was also trying to stimulate growth in the local economy.

Retailers and homeowners will now keenly be watching the big four lenders, to see whether they decide to pass some or all of the official rate cut on.