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RBA cuts rates to 3 percent

Interest cut in response to worsening economic conditions, as RBA warns of more economic volatility

Interest rates have again been cut in response to worsening economic conditions, as the Reserve Bank of Australia (RBA) warns of more economic volatility.

The RBA today decided to reduce interest rates by 25 basis points to 3 percent after assessments detailed further economic pain domestically and abroad.

RBA Governor Glenn Stevens predicted a gloomy outlook for the near-term despite expressing cautious hope of an economic revival.

“There are tentative signs of stabilisation in several countries, including China, though it is too early yet to judge how durable these will prove to be,” Stevens says.

He says financial institutions are continuing to be buffeted by the economic crisis, and “sentiment remains fragile” on whether conditions will begin to improve.

Although the RBA says Australian economy is still better placed than its international counterparts, Stevens says it will continue to decline throughout the year.

This is expected to translate to greater job losses, with Stevens saying demand for labour will continue to weaken. However, the decision to cut the interest rate is expected to have a positive effect.

“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Stevens says.

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