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News: Surprise Interest Rate Cut

By David Gordon

The Reserve Bank of Australia has cut interest rates by a surprise 50 basis points to 3.75%.

The last cuts, which delighted retailers and borrowers, were in November and December last year, when it cut interest rates twice by 0.25%, the first time in more than 2½ years years.

The cash rate had since then been unchanged at 4.25% for three successive monetary policy meetings, in February, March and April.

This time around all economists forecasted the RBA to cut rates.

The RBA said again that housing prices have shown some signs of stabilising recently, after having declined for most of 2011, but generally the housing market remained subdued.

“In considering the appropriate size of adjustment to the cash rate at today’s meeting, the board judged it desirable that financial conditions now be easier than those which had prevailed in December,” the bank says.

“A reduction of 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliver the appropriate level of borrowing rates.”

(article taken from 

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