Interest rates cut to three per cent

The Reserve Bank today cut interest rates by 25 points to three per cent, off the back of below average global growth forecasts.

In its monetary policy statement the RBA cited risks in Europe and the United States - in particular uncertainty over US fiscal policy - as key reasons for dampening growth. At the same time, Australia has experienced a decline in export prices and a peaking of resources investment in Australia, despite terms of trade remaining at record levels. The carbon tax is also expected to push headline inflation up above three per cent briefly.

On the upside, private consumption spending is expected to grow given that GDP growth has been running close to trend over the past 12 months.

"Over the past year, monetary policy has become more accommodative. There are signs of easier conditions starting to have some of the expected effects, though the exchange rate remains higher than might have been expected, given the observed decline in export prices and the weaker global outlook," the RBA said in its statement.

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