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September 2, 2008

Australia reduces interest rates

by Richard Kilner

Story link: Australia reduces interest rates

The Reserve Bank of Australia has reduced the cash rate from 7.25% to 7%, a cut of 25 basis points.

The cut, which comes into effect on 3 September, has been made in a bid to restrain demand and thus gradually reduce inflation.

The credit markets in both Australia and the wider global economy remain tighter than in recent years, and remain constrained by the impact of the credit crunch.

Research commissioned by the Reserve Bank have indicated that production growth has decelerated and business activity has weakened.

As with other comparable economies, Australia has been struck by a combination of falling asset values and rapid rises in fuel and food costs which have created inflationary pressures.

These twin difficulties have also had the effect of making future financial forecasts more difficult, particularly regarding inflation and demand.

The Reserve Bank predicts that CPI will remain high, at least in the near future, due to oil prices, but will reduce over time and is forecast to fall below 3% in 2010.

Australia’s central bank has stated that its monetary policy will be designed with the aim of bringing inflation back to a 2-3% level over the next few years.

 

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