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Australia cuts interest rates to boost growth

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by Kay Mitchell

The Reserve Bank of Australia (RBA) has today elected to cut interest rates by one quarter of a percentage point to 4.5% in a bid to bolster growth.

The move, which was widely expected, comes as the global economy slows and unemployment rises (currently at 5.2%).

It was the first time in two-and-a-half years that the RBA has cut rates.

The Australian economy, dubbed the “wonder from down under” was one of the few not to have fallen into recession like its counterparts throughout the world as it has benefited from an increase in commodity prices, while exports have received a boost due to demand from China for its iron ore and other raw materials.

However, flood and cyclone disasters, which hit earlier this year, led to a fall in coal and agricultural exports and resulted in the economy contracting in the first quarter – the largest contraction since 1991.

Furthermore, other areas of the economy, in particular retail sales, have suffered a sharp slowdown over recent months,

Meanwhile, in a statement today, the RBA said: “Information about the Australian economy suggests moderate growth overall.”

The bank added: “In other sectors, cautious behaviour by households and the high exchange rate have had a noticeable dampening effect.”

However, the high exchange rate has meant inflation has remained under control – unlike many other economies, particularly in Asia, which are suffering from stubbornly high inflation.

The RBA expects inflation to stay within its target range of 2% – 3% in 2012 and 2013.

The central bank warned that the euro zone’s sovereign debt crisis may continue to affect Australian businesses and households, despite the rescue plan agreed by European leaders last week.

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News posted: November 1, 2011

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