Economy

RBA cuts official interest rate by 25 basis points to 3.25%

Patrick Stafford /

The Reserve Bank of Australia has cut the official interest rate by 25 basis points this morning, in line with economists’ expectations.

In a statement, board governor Glenn Stevens said the outlook for the world economy has softened, with economic growth in Europe and the United States modest – and also made mention of the carbon tax and how it’s affecting prices.

He also pointed out that even though interest rates have been at lower than average rates, credit growth has softened and the exchange rate has remained higher than expected.

“Key commodity prices for Australia remain significantly lower than earlier in the year, even though some have regained some ground in recent weeks.”

The terms of trade have declined by over 10% since the peak last year and will probably decline further, though they are likely to remain historically high.”

And although the RBA said indicators available for the meeting show growth close to trend, investment in property has remained subdued.

A key factor was the activity in the resources sector, with commodity prices remaining “significantly lower than earlier in the year”.

Stevens also pointed out the introduction of the carbon price is affecting consumer prices, and “this will continue over the next couple of quarters”.

“At today’s meeting, the Board judged that, on the back of international developments, the growth outlook for next year looked a little weaker, while inflation was expected to be consistent with the target.”

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Patrick Stafford

Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.

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