All Topics / Finance / RBA Cuts rates by 0.75% more than expected

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  • Profile photo of Richard TaylorRichard Taylor
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    MEDIA RELEASE

    No: 2008-25
    Date: 4 November 2008
    Embargo: For Immediate Release

    Click for print-friendly version

    STATEMENT BY GLENN STEVENS, GOVERNOR
    MONETARY POLICY

    At its meeting today, the Board decided to reduce the cash rate by 75 basis points to 5.25 per cent, effective 5 November 2008.

    World financial markets have remained turbulent over the past month. Global equity prices have been volatile and fell further in net terms, and there have been significant exchange rate movements, including a sharp depreciation of the Australian dollar.  A number of governments have announced measures to strengthen their financial systems, which should help to stabilise conditions over time.

    International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well. These conditions have contributed to further falls in world commodity prices.

    In Australia, the overall path of economic activity appears until recently to have been close to what the Board had expected, with a needed moderation in demand occurring after a period of earlier strength. Recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence. On balance, it appears likely that spending and activity will be weaker than earlier expected.

    Consumer price inflation in Australia remained high in the September quarter. As expected, CPI inflation in year?ended terms picked up to 5 per cent, while underlying measures were just over 4½ per cent.  Nonetheless, capacity pressures are now easing and, given the outlook for more moderate growth in demand and activity, it is reasonable to expect that inflation in Australia will soon start to fall. Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise be the case.

    Weighing up these international and domestic developments, the Board judged that a further significant reduction in the cash rate was warranted. The Board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2–3 per cent inflation target over time.

    Richard Taylor | Australia's leading private lender

    Profile photo of Richard TaylorRichard Taylor
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    CBA have started the variable rate cut by announcing a 58 bhps point reduction.

    Richard Taylor | Australia's leading private lender

    Profile photo of jphlaujphlau
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    real clever strategy by CBA to cut only part of the variable rate so that other banks would not reduce it further.

    Profile photo of mpertilempertile
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    jphlau wrote:
    real clever strategy by CBA to cut only part of the variable rate so that other banks would not reduce it further.

     

    I was thinking the exact same thing – they were reluctant to come down the extra .2% last month (I think they were the last to do so), and I think they now want to set the trend, rather than reply to one.

    Profile photo of erichmjerichmj
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    Can I ask if the official cash rate is 5.25%, what will be the rate of fix or variable home loan on the market?
    is there a approx. figure say +2% or something like that?

    3ric

    Profile photo of WJ HookerWJ Hooker
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    erichmj,
                  Going back a while it was +2%. But with the financial crisis etc it has moved up a bit, I think it is now around 2 1/2% or so, but varies with different banks and organisations.
                   The reserve bank obviously wants us to spend spend spend but not on imported goods but local goods to help prop up the local businesses. With the depreciating value of the dollar they will get some assistance.
                   but I think people are slowly turning from spenders to savers, but this will take many many years to get the Australian public to start thinking beyond their next pay check.

    Profile photo of BizbloggedBizblogged
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    We need our banks to be strong and make profits so whats happening in the US doesn't happen here. I know i prefer to know that the bank i do my business with has a strong background.

    Bizblogged – Finance Blog, Finance, Economics,Corporate Finance, Personal Finance, Investing, Marketing

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