RBA slashes cash rate again

By: Troy Bilsborough

The Reserve Bank has announced another better-than-expected cut to interest rates today, reducing the official cash rate by 75 basis

The Reserve Bank has announced another better-than-expected cut to interest rates today, reducing the official cash rate by 75 basis points to 5.25 percent.

Most experts were predicting a quarter-to-half percent drop, however there was growing speculation the RBA would be reluctant to provide any further cuts after the Federal Government released its $10.4 billion compliment to the Bank’s decision to cut interest rates by a full percent last month.

However the release of a number of key economic and industry indicators have shown a continued slide in consumer spending.

According to the November Commonwealth Bank-ACCI Business Expectations Survey – released today - general business conditions and the business economic outlook have hit a fourteen year low due to the impact of slowing domestic demand and recent international financial market instability.

Australian Chamber of Commerce and Industry Director of Industry Policy and Economics Greg Evans says this shows the extremely difficult trading conditions faced by business.

Retailers have been hit particularly hard, with the latest Australian Bureau of Statistics figures for the sector showing a modest 0.2 percent growth in September, compared with 0.7 percent the year before.

As a result the Australian National Retailers Association says this has filtered through in the loss of 7,800 full-time jobs in the past twelve months.

RBA Governor Glenn Stevens says this was part of the decision for a second substantial cut.

"On balance, it appears likely that spending and activity will be weaker than earlier expected," he says.

He says signs that inflation is on track to steadily retract from its 13-year high of 5 percent also gave the bank confidence in its decision.

Evans says the rate reduction will provide much needed relief by alleviating borrowing costs and assisting flagging business and consumer confidence.

Industry groups are calling on the banks to pass on the full 0.75 percent cut immediately.

Prime Minister Kevin Rudd yesterday put the banks, particularly the majors, on notice, saying there was no reason why they could not pass the whole cut on.

ACCI is also calling on the RBA for further cuts between now and early 2009, labelling it the "responsible" thing to do.

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