RBA cuts rates – more cuts to come

The Reserve Bank will cut rates again in coming months economists say. Business leaders yesterday welcomed the central bank's move to lower the official interest rate for a second consecutive month.

Banking analysts said looming funding pressures were likely to force the big four banks – ANZ, Commonwealth, National Australia Bank and Westpac – to reduce lending rates by less than the 25-basis point cut in the cash rate. Industry experts believe the banks will cut their borrowing costs just 10-15 basis points as they move to build a buffer against the crisis.

After being almost evenly split over whether the RBA would cut yesterday, economists were last night united in their belief the central bank would cut again at its next scheduled meeting if the European problems remain unsolved.

In a statement, RBA Governor Glenn Stevens said the decision to cut rates to 4.25 per cent would buy the Australian economy cover ahead of an expected slowdown in China as Europe headed for a long and difficult recession next year.

Futures markets have priced in a drop in official rates to a low of 3.25 per cent by May.

Source: Herald Sun