Interest rates cut by 25 points

The RBA has cut interest rates by 25 points to 2.75 per cent to stimulate sustainable growth in the economy and constrain inflation.

In today's board meeting, RBA  Governor Glenn Stevens highlighted the effect of existing rate cuts on the economy, with borrowing rates at low levels, asset values increasing and interest-sensitive areas of spending also rising. On the business side, the interest rate reductions that began 18 months ago have also become more apparent, with non-mining business investment expected to increase and raw material exports already on the rise.

Despite these positive developments, GDP growth was below trend in the second half of 2012 and this looks set to continue into 2013. The exchange rate also remains at historically high levels and demand for credit is relatively subdued.

Furthermore, the 2.5 percentage point rise in CPI year-on-year has also been pushed up by the carbon price.

As a result, the Reserve Bank has made the decision to cut interest rates further, to encourage GDP growth and achieve the inflation target.

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