RBA cuts by 100 basis points again with more to come, economists
03 Feb 2009 3:09 PM
SYDNEY, Feb 3 AAP - The Reserve Bank of Australia (RBA) delivered another massive 100 basis point cut to official interest rates on Tuesday and economists expect more of the same in the coming months.
The RBA lowered the cash rate to 3.25 per cent at its February board meeting - its lowest level since 1964 - citing a significant deterioration in world economic conditions late last year.
"The near-term outlook for the global economy is the weakest for many years," RBA governor Glenn Stevens said in a statement.
"Economic conditions in Australia have also been affected, though less than in other advanced economies."
Mr Stevens said the decision to cut by 100 basis points cut "took into account" the federal government's second fiscal stimulus package - worth $42 billion - announced earlier on Tuesday.
The RBA has cut the cash rate by a total of 400 basis points since September in a bid to cushion the local economy from the global economic downturn.
Macquarie Group senior economist Brian Redican said the prospect of a rising jobless rate - the federal government's latest forecast was for the unemployment rate to reach seven per cent in 2010 - would prompt further monetary policy easing.
"I think most people were expecting them to cut rates by 100 basis points and I think in combination with the fiscal stimulus brought down, policy makers are obviously hoping that they've done enough to keep the economy on an even keel in 2009," Mr Redican said.
"However we do think that further interest rate cuts will still be required as the unemployment rate starts heading up.
"We will be dealing with the repercussions from very weak global demand for the next 18 months."
"There is certainly no room for complacency."
Mr Redican said the government's fiscal stimulus package was unlikely to have weighed heavily on the board's deliberations about the size of this month's monetary policy easing.
"It is more whether their efforts would be overlapping, or whether they would be complementary," he said.
"I certainly think that the key for the Australian economy will be whether they get the housing market turning around and that's really what the lower interested rates are directed at."
