The Reserve Bank of Australia has dropped official interest rates again by 0.25% to 4.25%.
The underlying reason for this drop in official rates was the continued European debt crisis. The board believes that the world economy is weakening and that Europe will be fortunate if its economy merely records zero growth in 2012. This weakness wil inevitably flow through to Australia further weakening the Reserve forecasts.
Domestically, the Australian economy is still relatively strong. Australian export prices remain at high levels, unemployment is around the historically low levels and inflation is in the acceptable range of between 2% to 3% where it is expected to remain for the whole of 2012 and 2013.
The Reserve Bank believes rates are now at or below normal, meaning there is no need to cut interest rates further in the absense of any new international downturn.
The Reserve board is not scheduled to meet again until early February. However it is within its power to hold a meeting at any time should a dramatic worsening of the European situation require emergency action.
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