Australian Cash Rate Reduced 100 Basis Points to 3.25%

February 3, 2009

The 100-basis point size of today’s Australian rate cut was as expected and followed an earlier unveiling of a A$ 42 billion fiscal stimulus by the government, its second of the crisis. This was the fifth rate reduction since September, cumulating to 300 basis points from the prior peak of 7.25%.  The four previous moves advised that further adjustments were either possible are would be taken as needed to achieve the medium-term 2-3% inflation target. Today’s statement omits such an assertion, but neither does it explicitly rule out further rate cuts. It merely says that macroeconomic stimulus, both fiscal and monetary, will help cushion Australia’s slowdown.  The statement calls the near-term global economic outlook the “weakest for many years,” but adds that Australia’s financial system remains in “strong condition and that Australian growth is in better shape than other advanced economies. It remains to be seen if this guardedly optimistic statement compels markets to back away from a further 75-bp rate cut priced into next month’s meeting. It would be surprising if rates did not get reduced again by some amount then.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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