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Recent media release informing the public that to reduce the cash rate by a further 100 basis points, to 4.25 per cent, effective 3 December 2008. Please read below for more info.

2 December 2008

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At its meeting today, the Board decided to reduce the cash rate by a further 100 basis points, to 4.25 per cent, effective 3 December 2008.

Recent actions by governments and central banks to stabilise their respective financial systems have begun to take effect.  Nonetheless, financial market sentiment remains fragile, as evidence accumulates of weak economic conditions in the major countries and a significant slowing in many emerging countries.  Commodity prices have fallen further.  This, combined with the likelihood of below-trend growth in the global economy, suggests that global inflation will moderate significantly in 2009.

The Australian economy has been more resilient than other advanced economies, but recent data nonetheless indicate that a significant moderation in demand and activity has been occurring. With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term. With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall. Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise have been the case.

Weighing up the international and domestic developments of recent months, the Board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting.  As a result of today’s decision, the cash rate will be at its previous cyclical low point.  Given trends in money market yields, most lending rates should fall significantly and will also reach below-average levels.

There has now been a major easing in monetary policy over the past few months.  Together with the spending measures announced by the Government, and a large fall in the Australian dollar exchange rate, significant policy stimulus will be supporting demand over the year ahead.  The Board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2–3 per cent inflation target over time.

and more related information below…

The Reserve Bank of Australia (RBA) looks set to slash interest rates for the fourth month in a row when it meets today.

Many analysts are tipping the bank will cut rates by 75 basis points to 4.5 per cent as it seeks to stave off recession.

Official figures out later this week are expected to show annual economic growth slowed from 2.7 per cent to 1.9 per cent over the September quarter.

CommSec’s chief economist Craig James says a 75-point cut today would mean the official rate has fallen by 275 points in four months.

“This is the most aggressive rate cut cycle that we’ve seen on record,” he said. “There’s still a fair bit of gloom around the place and the Reserve Bank wants to chase that away.”

But how much of a rate cut will reach borrowers remains in question, with the banks saying they still face high funding costs.

The urgency of action was underlined by figures on inflation and manufacturing which were released yesterday.

One survey showed manufacturing slumping to the lowest figure on record while the TD Securities and Melbourne Institute survey revealed inflation falling by 0.6 per cent in November, to reach an annual rate of 3 per cent.

Australian National University economist Timo Henckel says the numbers signal a cut of decent proportions.

“Strong reasons for the Reserve Bank to basically meet market and public expectations of about 75 to 100 basis points,” he said.

“A slight Christmas surprise of an additional 25 basis point cut might be justified on the grounds of the next board meetings not being until February,” he added.