Australia slashes interest rates by 1%

News on Australia

The Reserve Bank of Australia (RBA) has sprung a surprise by cutting its benchmark interest rate by 1% to 6%, after stating that the financial markets had taken a 'significant turn for the worse.'

It’s the second successive month that Australia's official lending rate has fallen, after the RBA cut interest rates for first time in seven years, last month, from 7.25% to 7%.

The RBA said the Australian economy now faced the prospect of slowing growth, while inflation would also slip.

"The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected," Reserve Bank governor Glenn Stevens said in an accompanying statement. "Should that occur, inflation would most likely fall faster than earlier forecast."

"Overall, my guess remains that the RBA's cash rate is on the way from 7% to 6% to 5% and towards 4%," said Rory Robertson, Macquarie interest-rate strategist, before the RBA announcement. "The RBA seems likely to cut its cash rate all the way back to 4.25% within two years."

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Information provided by Homes Overseas | © PropertyIndex.com 2008 | Last Updated: 07 October 2008