Australia’s central bank cut its key interest rate to the lowest level in almost 50 years yesterday, reinforcing fears the global financial crisis has dragged the country into recession.
The cash rate was lowered by a quarter percentage point to 3 percent and since September has been slashed a total of four and a quarter percentage points.
Economists had been divided about whether the Reserve Bank of Australia’s board would cut the rate again at its monthly meeting.
It left the rate unchanged last month.
The cut comes after the latest official data showed GDP shrank by 0.5 percent in the last quarter of last year and unemployment rose to its highest level in four years in February.
Reserve Bank of Australia Governor Glenn Stevens said recent information showed that the global recession continued from last year into this year, and most assessments for the short term were gloomy despite huge government spending plans.
“Considerable economic policy stimulus is in train in most countries, the full effects of which are not yet discernible, but which should help contain the downturn over the rest of the year,” he said in a statement.
“There are tentative signs of stabilization in several countries, including China, though it is too early yet to judge how durable these will prove to be,” he said.
Officials have pegged Australia’s recovery to China, which is the country’s largest trading partner and fueled a mining boom in recent years.
Stevens said plans to reform the banking systems in the US and elsewhere had helped global financial markets recover slowly, but added that “sentiment remains fragile.”
The Australian economy is contracting at a slower rate than its trading partners and inflation is likely to fall as unemployment rises, so the rate cut “will provide significant support to domestic demand over the period ahead,” he said.