Australian Reserve Bank Slashes Key Rate by 100 Basis Points

Daily Forex Fundamentals | Written by DailyFX | Feb 03 09 03:51 GMT |

The Reserve Bank of Australia slashed its overnight cash rate by 100 basis points to 3.25% as expected by a survey of economists. Since August the bank has slashed rates by a whopping 400 basis points. Further action may be needed as growth prospects continue to weaken on the back of slowing global demand. Indeed earlier today it was announced that the country’s trade surplus had narrowed as iron ore exports dwindled by 26.0% in the month of December. With third quarter output growing by a mere 0.1% it is expected that the last three month period of 2008 will see the economy actually shrink. In the accompanying statement, Governor Glenn Stevens appeared to express some optimism, stating that the nation “has been affected, through less than in other advanced economies.” He also added that “inflation has begun to moderate and…it is likely to continue to decline.” If indeed inflation undershoots the banks 2.0% target, further action by the board may be necessary to ensure that deflation does not take hold of the South Pacific economy. The report, however, was ambiguous as to whether further action would be taken. One thing is certain, the board understands the importance of the use of fiscal stimulus to prop the ailing economy. When Stevens stated that "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," he was implicitly endorsing today's announcement of a secondary A$26.5 fiscal stimulus plan. Australia Announces Secondary A$26.5 Billion Stimulus Plan Australia also unveiled a massive $26.5 billion second stimulus package that would be aimed at padding the economy from severe recession. The package would add to the A$45.0 billion announced in October. Indeed Prime Minister Kevin Rudd said today that the package would be “part of a broad strategy on which we embarked last year.” He further added, “the government remains determined to take what further measures are necessary to continue to support growth and jobs and the stability of financial markets into the future.” The release of a secondary stimulus, however, comes as little surprise as Treasurer Wayne Swan had previously stated that he would do whatever “necessary” to keep the nation’s economy afloat. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.