The Reserve Bank of Australia (RBA) has met the expectations of analysts and reduced the cash rate by a further 25 basis points to 3.0 per cent.
The decision follows last months decision to keep the rate steady at 3.25 per cent, which was attributed to slightly higher than expected prices data and slightly more positive information on the world economy.
Governor Glen Stevens has forecast global growth to be a little below average for a time and warned risks to the outlook still seen to be on the downside, owing largely to the situation in Europe and ongoing uncertainty over the direction of US fiscal policy.
However, Governor Stevens says recent data points to moderate growth in the US economy and stability in Chinese growth, while key commodity prices in Australia remain significantly lower than earlier in the year, although trends have been more mixed in recent months.
Governor Stevens says sentiment in financial markets is better than it was in mid year as progress is achieved in addressing Europe’s ongoing financial problems, although Europe is forecast to remain a source of instability for some time.
In Australia, long term interest rates remain at exceptionally low levels, capital markets remains open to corporations and well rated banks and borrowing conditions for large corporations are attractive.
The RBA concludes that most indicators suggest growth has been running close to trend in the past year and the peak in resource investment is approaching, while inflation is forecast to be consistent with targets over the next couple of years.
The central bank’s board judged that a further easing in monetary policy was appropriate to help foster sustainable growth in demand and inflation outcomes consistent with targets over time.
