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Monday, February 2, 2009

Reserve Bank cuts interest rates by 1 percent

The Reserve Bank of Australia has slashed cash rates by 1 percent, in an attempt to shore up the ailing economy against the rising tide of gloomy economic data.
Earlier today, Prime Minister Kevin Rudd urged Australia's banks to pass on the rate cut to cash-strapped homeowners, as he unveiled a $42 billion stimulus package to boost the economy. The plan includes cash handouts to low to mid-income earners.
The RBA's aggressive move has pushed the cash rate down to 3.25 percent - the lowest level since February 1964.


Government unveils $42 billion stimulus planLive: RBA rates decision
If the banks pass on the full 1 percent, homeowners with an average $250,000 on a variable home loan will see $162 shaved off their monthly payments.
Rates have already been slashed by 300 basis points since September last year, reversing a dozen rate rises between 2002 and early 2008.
With almost all of Australia's export markets contracting in the fourth quarter, Rudd said yesterday that the shockwaves from across the globe, particularly from the slowdown in China's economy, will cost Australia $115 billion in revenue over the next four years and push the federal budget into a "temporary" deficit.
As economic growth grinds to a halt across the world, the government today halved its 2008/09 growth forecast to 1 percent - from a November forecast of 2 percent.
The International Monetary Fund (IMF) has a less rosy outlook, anticipating the Australian economy to contract by 0.2 percent in 2009, and at its very best stall to zero growth.

By Emma Thelwell, ninemsn Money, 3 February 2009