Australia central bank cuts rates to 4.25 pct

SYDNEY (Dec 6): Australia's central bank on Tuesday cut its main cash rate by 25 basis points to 4.25 percent, the second easing in as many months as it reacted to a benign inflation outlook at home and downside risks to economic growth globally.

The Reserve Bank of Australia (RBA) made the announcement following its monthly policy meeting. - Reuters

this one made the AUD drop 60 odd pips

Australia Cuts Key Rate, Citing Europe Risk
By Michael Heath - Dec 6, 2011 11:47 AM GMT+0800
Australia’s central bank lowered its benchmark interest rate today for a second straight month as Europe’s fiscal crisis threatens to slow the nation’s commodity exports to Asia. The local dollar dropped.
Governor Glenn Stevens and his board reduced the overnight cash-rate target by a quarter percentage point to 4.25 percent, the Reserve Bank of Australia said in a statement in Sydney today. The move was the first back-to-back easing since February 2009 and was predicted by 13 of 25 economists surveyed by Bloomberg News. The rest forecast no change.
The cut reflects Stevens’s concern euro-area turmoil is dimming prospects for the global economy and will keep Australia’s underlying inflation rate within the RBA’s 2 percent to 3 percent target range. Stevens joins Group of 20 counterparts from Jakarta to Brasilia in easing monetary policy as they seek to bolster confidence and demand.
“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe” he said in today’s statement. “This, together with precautionary behavior by firms and households, means that the likelihood of a further material slowing in global growth has increased.”
After the decision, the Australian dollar weakened to $1.0198 at 2:39 p.m. from $1.0234 earlier.
EU Turmoil
Germany and France risk losing their AAA credit ratings in a review of 15 euro nations for possible downgrades, Standard & Poor’s said yesterday as the region struggles to lower budget deficits with unemployment near 10 percent.
Evidence is growing that Europe’s sovereign-debt crisis is weakening growth in Asia’s developing economies, which the International Monetary Fund predicted in September would lead a global recovery next year.
China is Australia’s biggest trading partner and its demand for iron ore, coal and energy drove the nation’s terms of trade -- a measure of export prices relative to import prices -- to a record this year.
“China’s growth has been slowing, as policy makers there had intended,” Stevens said today. “Trade in Asia is now, however, seeing some effects of a significant slowing in economic activity in Europe.”
China’s Slowdown
Separate reports last week showed manufacturing slumped in China and the euro region to the weakest levels in more than two years. A Nov. 30 government report showed India’s economy grew 6.9 percent in the three months through September, the weakest expansion since the second quarter of 2009.
Australia’s overseas shipments and a A$456 billion ($467 billion) pipeline of resource projects helped spur the local currency to $1.1081 on July 27, the highest level since it was freely floated in 1983.
Europe’s troubles have weighed on the so-called Aussie in recent months. The world’s fifth most-traded currency has fallen 8 percent since its peak on concern Greece would default and trigger a repeat of the 2008 credit freeze after the collapse of Lehman Brothers Holdings Inc.
Even after today’s reduction, Australia’s benchmark borrowing cost is among the highest in the developed world. Central bank policy rates in Japan and the U.S. are near zero, the U.K.’s is 0.5 percent, Canada’s is 1 percent, the euro zone’s is 1.25 percent and New Zealand’s is 2.5 percent.

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