Australia Gets Another Large Interest Rate Cut

Aftert its meeting today, Australia’s Reserve Bank announced it was going to cut its key interest rate sharply, from 6 percent to 5.25 percent, the lowest rate since December 2003.

Justifying the cut, the bank said that world financial markets have remained turbulent over the past month. Recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence. On balance, it appears likely that spending and activity will be weaker than earlier expected.

Today’s cut brings the total interest rate cuts to 2 percentage points since the reserve bank started cutting rates.

As was the case with the previous 1 percent cut, it does not look likely that Australia’s retail banks will pass on the full cut to their customers.

The Commonwealth Bank was the first bank to respond, lowering its variable home loan rate by 0.58 percent rather than the full 0.75 percent.