2 Dec 2008

Australia cuts interest rates to 4.25%

8:57 pm on 2 December 2008

The Reserve Bank of Australia cut official interest rates by 100 basis points to the lowest level in six-and-a-half years on Tuesday, amid signs of a significant moderation in domestic demand.

The central bank lowered the cash rate to 4.25%, from 5.25%, for the first time since 7 May 2002.

It is the fourth month in a row the bank has cut interest rates in a bid to head off the impact of slower world growth on an already soft Australian economy.

Many homeowners can expect to save nearly $A200 a month on an average mortgage.

The reduction was more than financial market economists had been expected. Most were looking for a 75 basis point reduction.

However, debt futures markets were more optimistic and had factored in a 100 basis point cut.

RBA governor Glenn Stevens said the bank's board had judged a further significant fall in the cash rate was warranted this month to create a more expansionary setting for the economy.

Commonwealth Bank of Australia, Westpac Banking Corp and National Australia Bank Ltd moved quickly to cut their variable home loan rates within minutes of the central bank's move.

CBA and NAB each lowered their standard variable rates by 100 basis points. Westpac cut its rate by 80 basis points.