Reserve slashes interest rate to 3.25%

Submitted 3/02/2009

AAP

The Reserve Bank of Australia (RBA) has slashed its official cash rate by a further 100 basis points following today's board meeting.

The cash rate is now 3.25 per cent, the lowest level in 45 years.

Economists had expected a cut of at least 75 basis points given the rapid deterioration in the global economy since the central bank last cut the rate in December.

The RBA has cut the rate by a massive 400 basis points since September last year in attempts to protect the economy from sinking into recession.

Earlier, the federal government said it expected economic growth to be just 1.0 per cent in 2008-09, slowing to a mere 0.75 per cent in 2009/10.

This is a marked downgrade from the respective forecasts of 2.0 per cent and 2.25 per cent made in November.

RBA governor Glenn Stevens says the combination of last year's financial turmoil, a severe global downturn and substantial falls in commodity prices have dampened confidence in Australia.

Mr Stevens says in these circumstances the board believes a further sizable reduction in the cash rate is appropriate to support further demand.

He says in making its decision the board took into account the government's additional 42 billion dollar stimulus package announced earlier on Tuesday.

The RBA will release its quarterly monetary policy statement on Friday.