Latest NewsRBA cuts key rate by 100 basis pointsFriday, 05 August 2016

February 3, 2009 - 3:24PM

The central bank has slashed the cash rate to a 45-year low, saying the reduction will work in tandem with the government's latest stimulus measures to help cushion Australia from the global economic crisis.

The Reserve Bank of Australia (RBA) cut the cash rate to 3.25 per cent, from 4.25 per cent, and its lowest level since early in 1964, after its first board meeting of the year on Tuesday.

RBA governor Glenn Stevens said in a statement that while Australia had been less affected by the crisis than other advanced economies, confidence and demand growth prospects had been dampened.

"In these circumstances, the board judged that a further sizable reduction in the cash rate was appropriate, to give further support to demand," Mr Stevens said.

The RBA board noted the federal government's announcement earlier on Tuesday of a $42 billion fiscal stimulus package to help support the economy through the current difficult times.

"In making its decision, the board took into account the package of measures announced by the government earlier today," Mr Steven said.

"The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad."

Mr Stevens said inflationary pressures in Australia had begun to moderate and were likely to continue to decline.

He said Australia's financial system remains strong.

In making its decision the RBA board had noted a significant deterioration in world economic conditions late in 2008, resulting in a downturn in demand around the world.

"As a result, the major advanced economies contracted sharply in the December quarter, as did a number of emerging market economies," Mr Stevens said.

"The Chinese economy, though still growing, has slowed markedly.

"Global inflation, having reached high rates during the middle of 2008, is now declining."

Measures taken by government's around to world to stabilise their financial systems had helped improve conditions in credit markets in recent month.

"This, in conjunction with expansionary macroeconomic policy measures being taken around the world, should assist in promoting global recovery over time," Mr Stevens said.

"But the near-term outlook for the global economy is the weakest for many years.

Mr Stevens said while economic conditions in Australia have also been affected, the impact was less than in other economies.

"Australia's financial system remains in a strong condition and large interest rate reductions over recent months have been passed through in substantial measure to end borrowers," he said.

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