7 Dec 2011

Australia's central bank cuts main cash rate to 4.25%

4:54 am on 7 December 2011

The Reserve Bank of Australia has cut its main cash rate by 25 basis points to 4.25%.

The ABC reports it's the second decrease in as many months as inflation slowed at home and Europe's debt crisis dragged on economic growth globally.

In a statement, RBA governor Glenn Stevens pointed to the ongoing sovereign credit and banking crisis in Europe, which he said was now affecting trade in Asia.

Treasurer Wayne Swan hailed the announcement as "a welcome decision for families and businesses both large and small" and urged all banks to pass the rate cut on in full.

"As this decision shows, we are facing turbulent times in the global economy," Mr Swan said.

Mr Stevens said turbulent financial markets, tough financing conditions and cautious behaviour by businesses and households meant that global growth was likely to keep slowing.

On the domestic front, Mr Stevens said while investment in the resources sector was likely to keep rising, the high exchange rate and consumer caution had had a "noticeable dampening effect" on other sectors of the economy.

Inflation on a year-ended basis remained above the central bank's preferred range of 2 to 3%, Mr Stevens said, but was likely to return to the target range in 2012 and 2013.