Tuesday, December 6, 2011

Reserve Bank cuts again as Europe crisis escalates and inflation softens

The Reserve Bank has cut interest rates for the second consecutive month as Europe's debt crisis escalates and local inflation softens.

In a statement, the RBA governor Glenn Stevens said the board had cut the cash rate by 0.25 percent to 4.25 percent - the lowest level since April 2010.

Here's my analysis from ABC News Online.

In outlining its reasons, the RBA board said:

* the inflation outlook "afforded scope for a modest reduction in the cash rate"
* growth in the global economy had moderated
* growth in China was slowing as policymakers had intended
* trade in Asia was seeing the effects of a significant slowing in Europe
* sovereign credit and banking problems in Europe were likely to weigh on economic activity
* financial markets had experienced considerable turbulence and financing conditions had become more difficult

Read the RBA statement here.

The RBA's decision comes as Eurozone leaders prepare to meet in Brussels to find a solution on containing Europe's debt crisis.

But there is an even more disturbing backdrop courtesy of a stark warning from Standard & Poor's.

S&P has put 15 Eurozone nations on "credit watch negative", warning that six could lose their AAA status.

Two nations are spared.

Cyprus because it was already on negative watch, and Greece is already at junk status with S&P reconfirming its view that a Greek default is a high likelihood.

Here's the full statement from Standard & Poor's.

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