Australia Slashes Interest Rates

Australia is concerned that its economy is slowing too much and has acted to stimulate growth by trimming its interest rates to a record low. The Australian Reserve Bank has reduced interest rates by 0.25% from 2.75% to 2.5% - this is still ten times the rate on offer at the Bank of England where rates have been at 0.25% since March 2009.

Australians go to the polls on 7th September and just last week the government trimmed its growth forecast from 2.75 to 2.5% and warned that slowing economic growth could trigger a rise in unemployment. In common with all elections in developed nations, the economy will be a key battle ground. Australia fared best of the major economies during the global financial crisis and avoided recession. Its currency strengthened since it was seen as a safe haven. However, demand in the wider world has slowed and this is hurting Australia’s commodities exports.

The ruling Labor party has trumpeted the reduced interest rates as meaning that household expenditure on mortgages will fall:
"This cut means that a family with a standard mortgage of A$300,000 ($269,500 ;£175,700) will now be paying around $A500 less a month and A$6,000 less in annual payments than when the Coalition was last in office," Treasurer Chris Bowen told Australian Broadcasting Corporation (ABC).
The opposition’s leader, Tony Abbot, naturally had a different take on the reduction in his own interview with ABC: "There is no doubt that a reduction in interest rates is a good thing, but you have to ask yourself why are interest rates likely to be cut. If interest rates go down, it is because this government is presiding over an economy which is in much more trouble than government has previously been prepared to admit."
Analysts think that the Australian Reserve Bank may need to make further cuts to interest rates in the course of the year, but at least they have the flexibility to do so unlike other central banks with rates much closer to zero.