Australia slashes interest rates by 100 basis points

by Richard Kilner

Story link: Australia slashes interest rates by 100 basis points

The Reserve Bank of Australia (RBA) has slashed interest rates by 100 basis points, so that the rate now stands at 6%, with effect from the October 8th.

In a statement released by Governor Glenn Stevens, the RBA explained that the decision had been taken in the light of a dramatic downturn in the international financial markets during the course of the last month.

Slumping shares, banking sector instability in a number of areas, and several significant failures have led numerous countries to try and bolster stability through provision of short-term liquidity.

Australia, the RBA believes, will be affected by financing difficulties but to a lesser degree than many other nations due to its fundamentally strong banking system.

Commodity prices across the globe have not maintained their previous surge upwards in cost, and inflation is expected to become more stable in 2009.

If demand should become weaker than expected, it would also lead to inflation dropping at a faster rate than predicted by the bank.

With the extreme and turbulent financial weather experienced worldwide in September, the RBA therefore took the decision to make a substantial change to rates.

The bank’s goal remains to bring inflation within the 2-3% over the course of time, and to alter monetary policy accordingly to enable this to happen.