HONG KONG: The Australian central bank on Tuesday surprised the markets yet again with a larger-than-expected reduction in the cost of borrowing, joining a global wave of easing rates to fight the financial crisis.
The Reserve Bank of Australia slashed its key interest rate by three-quarters of a percentage point to 5.25 percent, rather than by the half-percentage point that had been widely expected. Policy makers worldwide are racing to prop up banks, calm volatile stock markets and inject steam into their flagging economies by aggressively reducing the cost of borrowing.
The U.S. Federal Reserve Board last week lowered its benchmark interest rate by half a percentage point to 1 percent, its second big rate cut this month.
The European Central Bank and the Bank of England each cut rates last week and are all but certain to deliver yet another cut on Thursday.
"International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well," the Reserve Bank of Australia said in a statement accompanying its decision on Tuesday.
"Deteriorating international conditions and falling commodity prices will have a dampening influence" on the Australian economy.
The Australian cut was the third easing move in the country in just over two months; last month, the Australian bank slashed the cost of borrowing by a surprisingly large amount - a full percentage point. The bank is taking advantage of the fact that, unlike the United States and Japan, it has plenty of room for maneuver to ease rates still further.
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Unlike Japan, South Korea and others in the Asia-Pacific region, Australia has little exposure to consumer goods and cars. Cutbacks in consumer spending in key markets like the United States and Europe has badly hurt economies that rely on these exports.
But the financial crisis and economic slowdown has not left the country unscathed. Australian statistics released earlier this week showed a marked drop-off in retail sales and house prices and likely helped persuade the central bank to lower the cost of borrowing.
The steady stream of grim data from the United States also add to the fears of global recession. A measure of overall manufacturing activity in the United States fell last month to its lowest level in 26 years, according to data released Monday.
Also on Monday came news that sales of new cars and trucks in the United States plummeted in October to levels not seen in the auto industry in 25 years. Nissan in Japan echoed the bearish picture. The company cut its profit forecast and scrapped its dividend plans, prompting a sharp fall in its share price Tuesday.
source: iht
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