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SYDNEY: Australia's central bank slashed interest rates by 100 basis points Tuesday in the latest in a series of aggressive cuts sparked by the global financial crisis.
The bigger-than-expected cut by the Reserve Bank of Australia (RBA) dropped the official cash rate to 4.25 per cent, the lowest in more than six years, as the bank predicted that inflation could soon begin to fall.
It was the fourth consecutive monthly cut by the RBA, which has sliced a total of 300 basis points off the official rate since September as inflation fears give way to concern about the impact of slower world economic growth.
Most financial market economists had expected a 75 basis point reduction, although with the bank having opted for a big one percentage point cut in October a repeat was not totally unexpected.
"Recent actions by governments and central banks to stabilise their respective financial systems have begun to take effect," RBA governor Glenn Stevens said in a statement.
"Nonetheless, financial market sentiment remains fragile, as evidence accumulates of weak economic conditions in the major countries and a significant slowing in many emerging countries."
The Australian economy had been more resilient than others, but recent data indicated that a significant moderation in demand and activity had occurred, he said, and it was likely inflation would soon start to fall.
Inflation data released Monday showed a sharp turnaround in price pressures amid the global financial crisis.
The TD Securities-Melbourne Institute inflation gauge dropped 0.6 per cent in November - the biggest one-month fall in its six-year history.
And the gauge's measure of annual inflation fell from 3.9 per cent in October to 3.0 per cent in November, placing it just at the top end of central bank's 2.0-3.0 per cent target inflation range.
"The previous inflation problem has been turned on its head," TD Securities senior strategist Joshua Williamson said. "There has been a quite staggering turnaround in price pressures in recent months."
Stevens said that together with spending measures announced by the government, and a large fall in the Australian dollar, significant policy stimulus would be supporting demand over the year ahead.
- AFP/yb
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