Australia’s central bank cut its benchmark interest rate by a quarter percentage point yesterday, the second such move in as many months as concern mounts over the fragile global economy.
The Reserve Bank of Australia said its decision to lower the rate to 4.25 percent comes amid uncertainty over the European debt crisis and concern that global economic conditions could worsen.
“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe,” Reserve Bank Governor Glenn Stevens said in a statement. “This, together with precautionary behavior by firms and households, means that the likelihood of a further material slowing in global growth has increased.”
Economists were split on what the bank would do, after it cut the cash rate by a quarter percentage point last month. Yesterday’s decision marked the first time the bank has cut rates in consecutive months since Dec. 2008, the height of the global financial crisis.
The move will provide a savings of an extra A$50 (US$51) a month on a A$300,000 mortgage, Australian Treasurer Wayne Swan said.
“Christmas is a time when family budgets are stretched, so I’m certain it will be welcome,” Swan told reporters.
The treasurer said the country’s economy remained strong, but said there are “serious risks” arising from Europe’s debt woes.
EU leaders will hold a summit later this week to discuss a plan to resolve the crisis.
“There is a lot riding on what is happening in Europe as we go through the rest of this week,” Swan said.
“All of us hope and pray that the Europeans get their act together,” he added.
Australia’s economy remained strong throughout the global financial crisis because of a mining boom largely fueled by China’s large demand for iron ore, coal and natural gas.