Australia Monetary Policy


RBA cuts interest rates for second consecutive meeting

On 6 December, the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points from 4.50% to 4.25%%, in a move which was expected by the market. The decision represented the second rate cut in a row, following 10 consecutive meetings in which monetary authorities kept the cash rate unchanged. According to monetary authorities, the likelihood of a further material slowing in global growth has increased, amid considerable turbulence in the international financial markets, which is mostly a consequence of the unfolding debt crisis in Europe. The RBA maintains a more mixed outlook on the domestic economy. While investment in the resources sector remains strong, a high exchange rate and prudent household behaviour are having a ?noticeable dampening effect on economic activity. With regard to inflation, the Bank's current judgement is that inflation is likely to be consistent with the 2-3 per cent target in 2012 and 2013. The favourable inflationary scenario afforded scope, according to RBA, for a modest reduction in the cash rate. Monetary authorities concluded the statement suggesting that they will continue to set policy as needed to foster sustainable growth and low inflation over time. According to analysts, the phrasing suggests that RBA remains open to further rate cuts going forward.

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