Reserve Bank cuts interest rate

The Reserve Bank announced today it has cut the official cash rate, amid moderate inflation figures and a weaker than anticipated economic environment. The cash rate now sits at 3.75 per cent, a 50 basis point reduction.

The recent fall in underlying inflation and CPI inflation has prompted the third interest rate reduction since November last year.  According to Reserve Bank Governor, Glenn Stevens, the cash rate is now consistent with the RBA's impartial monetary stance, as it seeks to maintain a 2-3 per cent inflation rate.

"Over the past year, the Board has maintained a mildly restrictive stance of monetary policy, in view of its concerns about inflation. With overall growth moderate, inflation [is] now likely to be close to target and confidence subdued outside the resources sector,"   Mr Stevens said in a statement following the Board's monthly meeting.

The consistently high Australian dollar also encouraged the move, as the nation's economy continues to undergo a period of structural change.

"The terms of trade have now peaked and will decline somewhat in the near term, but they remain very high. In response, investment in the resources sector is picking up very strongly, with much more to come. Some related service sectors are enjoying better-than-average conditions.

"In other sectors, cautious behaviour by households and the high exchange rate have had a noticeable dampening effect," Mr Stevens said.

According to the latest D&B Business Expectations Survey, business sentiment fell 11 points, with more than a third expecting interest rates to have the most impact on business in the coming quarter. The continuing high dollar was also key cause of concern for 35 per cent of executives.

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