Bloomberg Reserve Bank of Australia’s Stevens Explains Rate Cut

Feb. 3 (Bloomberg) -- Following is the text of a statement by the Reserve Bank of Australia Governor Glenn Stevens explaining the decision to cut the benchmark interest rate by 1 percentage point to 3.25 percent in Sydney today. The statement was published on the bank’s Web site:

At its meeting today, the Board decided to reduce the cash rate by a further 100 basis points, to 3.25 percent, effective 4 February 2009.

There was a significant deterioration in world economic conditions late in 2008. The effects on household and business confidence of the financial turmoil following Lehman’s collapse, and continuing strains on major financial institutions, saw a significant downturn in demand around the world. As a result, the major advanced economies contracted sharply in the December quarter, as did a number of emerging market economies. The Chinese economy, though still growing, has slowed markedly. Global inflation, having reached high rates during the middle of 2008, is now declining.

Measures to stabilize financial systems have contributed to an improvement in the functioning of credit markets over the past couple of months. This, in conjunction with expansionary macroeconomic policy measures being taken around the world, should assist in promoting global recovery over time. But the near-term outlook for the global economy is the weakest for many years.