Australia Cuts Rate by 75bp


Australia's central bank cut its benchmark interest rate by a larger-than-expected three quarters of a percentage point, the third reduction in as many months, amid evidence global financial turmoil is buffeting the economy.

Governor Glenn Stevens lowered the overnight cash rate target to a 3 1/2-year low 5.25 percent in Sydney today, adding to last month's 1 percentage point reduction.

Falling house prices and retail sales plus October's 14 percent slump in the All Ordinaries stock index, the biggest drop since 1987, have prompted Stevens to undertake the most aggressive round of rate cuts since the economy was last in a recession in 1991. The U.S., China, India, Japan and South Korea all lowered borrowing costs in the past week.

Weighing up international and domestic developments, the central bank ``board judged that a further significant reduction in the cash rate was warranted,'' Stevens said in a statement today. ``It appears likely that spending and activity will be weaker than earlier expected,'' he added.

Stevens and his board have lowered borrowing costs by 200 basis points since the start of September. The combined reductions will cut repayments on an average A$300,000 ($200,000) home loan by about A$400 a month, according to Treasurer Wayne Swan, who said today's decision will help strengthen the economy.

Australia's gross domestic product rose 0.3 percent in the second quarter, the weakest growth in more than three years, as consumers cut spending for the first time since 1993.

House prices fell 1.8 percent in the third quarter, the biggest drop since the late 1970s. Retail sales tumbled in September by the most in three years and job advertisements slid for a sixth month, reports showed yesterday

An index of manufacturing slumped in October to the lowest level since the Australian Industry Group began measuring output in 1992, another report showed yesterday.

 


TradingEconomics.com, Bloomberg.com
11/4/2008 5:04:41 AM