Australia’s central bank reacted to the global stock market slump with a surprise one per cent cut in the base rate - taking it down to six per cent.
The last time the Reserve Bank of Australia (RBA) cut the rate by 100 basis points was in May 1992.
The move instantly lifted Asian markets, as investors took it as a sign other central banks around the world are preparing to slash their own rates.
In a statement, the RBA said an “unusually large” cut was needed to reduce costs for borrowers, adding the movement should be considered as a one-off.
Although the next consumer price index (CPI) data is expected to show inflation at five per cent, above Australia’s two to three per cent target, recent events have increased the risk that demand and output will be far lower than predicted.
Global inflation is likely to come down in 2009 and may fall faster than anticipated as the economy slows, the RBA added.
Bank governor, Glenn Stevens, said: “The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected.
“Should that occur, inflation would most likely fall faster than earlier forecast. Given that background, the board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy.”
Mr Stevens added the Board will set monetary policy “as needed” to bring inflation back to the two to three per cent target over time.
One Comment
don’t know much about economics but why is it that other governments seem to grasp situations and deal with them immediately, and ours is a wait and see policy every time, keeping the tax payers in misery.