Australia cuts interest rates to 4.5%

2011-11-01 11:28:22

Australia's central bank Tuesday cut interest rates to 4.5 per cent, the first time they have been lowered since April 2009 as inflation slows and it seeks to restore impetus to the economy.

The Reserve Bank of Australia said while fears of a major global economic downturn had not borne out so far, a 25 basis point cut was appropriate given inflation was moderating and confidence was subdued.

"Over the past year, the Board has maintained a mildly restrictive stance of monetary policy, in view of its concerns about inflation," Governor Glenn Stevens said.

"With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the Board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2-3 per cent inflation over time."

Interest rates last moved in November 2010 when the bank lifted them 0.25 per cent to 4.75 per cent, continuing a climb that started in October 2009 after Australia emerged from the global financial crisis in a strong position.

The latest move had been widely expected by economists, particularly after the release of data last week showing inflation was easing.

"The RBA reduced the official cash rate to support the economy which has recently shown signs of weakening and to lift consumer and business confidence," ING Direct analyst Glenn Baker said.

"The concerns in Europe are having a negative impact on the global economy which in turn is impacting Australia, particularly through a drop in confidence. The RBA has taken this into account."

The Australian dollar fell immediately after the announcement, dipping to 104.88 US cents from 105.28 US cents.