Econintersect: 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%.
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.
- Australia cuts interest rates by 50bps (Niel Hume, Financial Times, 1 May 2012)