The Reserve Bank of Australia has decided as of 2:30 pm AEST, to lower the cash rate to a 25 basis point cut to 7 per cent, effective as of the 03rd September 2008 – according to Governor Glenn Stevens.
In an effort to restrain demand where inflation has been growing over the past year with limited capacity and in order to reduce inflation over time – the Reserve Bank decided to lower the cash rate to 7 per cent.
Traders and speculators anticipated a rate cut by the Reserve Bank and drove the Australian Dollar to its lowest level in almost a year against the US Dollar. This is the first time the interest rates were lowered since 2001. It was also driven by high demand in US Dollar in the expectation that the Hurricane Gustav was a weaker than expected storm and there was an easing concern of major damage to rigs and refineries.
According to Glenn Stevens of the Reserve Bank board, surveys a softening in business activity and growth in production has slowed. Fixed investment spending continues to be strong and at the same time, high prices of oil and other commodities have added to global inflationary risks.
Looking further ahead, inflation is likely to remain relatively high in the short term, household demand remains subdued and a slower economic growth over the period ahead. The Reserve Bank forecast that inflation will fall below 3 per cent during 2010. The Board will also continue to monitor demand and inflation over the period ahead and will issue monetary policy if needed to bring inflation back to the 2-3 per cent target over time.
What are your thoughts on this?