Interest rate cut by 25 basis points

The Reserve Bank  today cut interest rates by 25 points to 3.25 per cent, off the back of a weak international outlook and lower commodity prices.

According to RBA Governor Glenn Stevens, downside risks still remain in the global outlook, with European economic activity on the decline and the United States experiencing modest growth. China's growth has also moderated, and together with a deteriorating Europe, has delivered a knock-on effect to Asia's growth.

In Australia, export commodity prices and terms of trade have declined, the latter by over ten per cent since its peak last year, although the dollar has remained higher than expected. Terms of trade will likely decline further but still remain "historically high", says the Reserve Bank.

On the upside, firm consumption growth in the first half of 2012 and significant increases in capital spending in the resource sector have indicated that growth is running close to trend, although the Bank predicts that resource investment will likely peak next year at a lower-than-expected level.

Other key economic indicators have also shown promise, with inflation hovering near two per cent over the year to June 2012 and the unemployment rate at low levels.

These international and domestic developments influenced the RBA's monetary policy decision lower rates.

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