FNArena Alert: RBA Cuts By 100bp

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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
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By Rudi Filapek-Vandyck

The board of the Reserve Bank of Australia has not disappointed, cutting the official cash rate by a further 100 basis points, to 4.25%, effective 3 December 2008.

The accompanying statement by Governor Glenn Stevens mentions that global inflation is likely to moderate “significantly” in calendar 2009, as well as that while the Australian economy has been more resilient than other advanced economies, “recent data nonetheless indicate that a significant moderation in demand and activity has been occurring”.

A 75 basis points clearly was not regarded as sufficient stimulus at this point in time, although Stevens notes “it is likely that inflation in Australia will soon start to fall”. One would assume behind this fall in inflation lies an even greater fall in economic growth.

The closing paragraph of Stevens’ statement doesn’t give much away about future decisions: “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.”

Commonwealth Bank ((CBA)) and National Australia Bank ((NAB)) have already announced they will pass on this rate cut by the full 100 basis points.

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