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Reserve Bank Australia

Slowing growth brings about rate cut

The Reserve Bank of Australia cut the official cash by 25 basis points today, citing slowing economic and credit growth as two of the key drivers behind its decision. 

The decision marks the fifth time the RBA has cut rates since November last year.

According to Governor Glenn Stevens, the outlook for growth in the world economy has softened over recent months. Stevens said European economic activity is contracting and growth in the US remains modest, as it is in China.

“In Australia, most indicators available for this meeting suggest that growth has been running close to trend, led by very large increases in capital spending in the resources sector. Consumption growth was quite firm in the first half of 2012, though some of that strength was temporary,” he said.

Although inflation remains low and on trend, the RBA said the introduction of the carbon price is affecting consumer prices – and will likely do so for the next couple of quarters. Despite this, credit growth remains soft and the exchange rate is sitting higher than expected, especially given the decline in export prices and the weaker global outlook.

“At today’s meeting, the Board judged that, on the back of international developments, the growth outlook for next year looked a little weaker, while inflation was expected to be consistent with the target,” Stevens said.

“The Board therefore decided that it was appropriate for the stance of monetary policy to be a little more accommodative.”

Interest rates were last this low in October 2009.