Australia Slashes Interest Rates

May 1st, 2012
in econ_news

/australia-koalaSMALLEconintersect:  The key interest rate, called the cash rate, has been cut by the Reserve Bank of Australia (RBA) from 4.25% to 3.75%.  According to Neil Hume in the Financial Times, the steep cut came as a surprise – the widely held expectation was for a cut of 25 bps.  The government, headed by Prime Minister Julia Gillard, has been positioning itself to be supportive of a rate cut by saying that they intend to return the national budget to surplus in 2013.  The last time the RBA made a cut of more than 25 bps was in February 2009 approaching the depth of the Great Recession.  At that time they cut by a full 1%.

Follow up:

The justification for the cut?  From the Financial Times:

It . . . follows a series of disappointing economic reports and a sharp fall in headline inflation. Data released on Tuesday showed Australian house prices had declined by 1.1 per cent in the first quarter of 2012, the biggest quarter-on-quarter decline in almost a year.

John Lounsbury


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