RBA Lowers Rate to 6%

123jump.com Staff
07 Oct, 2008
New York City

The Reserve Bank of Australia lowered its key lending rate by 100 basis points to 6%. The larger than anticipated cut was prompted by tight lending conditions in the global markets. Stocks rallied on the rate decision. Mining and energy stocks rallied but gains were trimmed in late trading.

[R]3:00AM New York, 7:00PM Sydney – The Reserve Bank of Australia lowered its key lending rate to 6%. Commonwealth Bank of Australia engages HBOS to buy BankWest unit.[/R]

Stocks in Australia rebounded from a marked decline yesterday as the Reserve Bank of Australia cut its cash rate by 100 basis points, larger than anticipated. The surprise cut reversed the mood in trading in the region but markets in the region closed mixed.

Market Sentiment

In Sydney trading ASX 200 rose 1.71% or 78.3 to 4,618.70.

Of the ASX 200 index stocks 114 rose, 80 declined, and 6 were unchanged. HFA Holdings led advancers in the index shares with a rise of 14.41% followed by Macquarie CountryWide Trust gaining 9.44%.

RBA Slashes Cash Rate to 6%

The Reserve Bank of Australia today lowered its cash rate to 100 basis points to 6% effective from tomorrow beating the estimates of 50 basis points.

According to the central bank, the current market conditions require accommodative monetary policy and increase liquidity in the market. The Board considered that there was need for an unusually large movement in the cash rate in order to significantly reduce costs to borrowers.

Interbank rates are at record level as banks are unwilling to lend to each other and fears of another bank failure in Europe and the U.S. are rampant. The RBA believes that financing conditions are ""likely to be difficult around the world for some time ahead"".

The RBA also noted that the consumer price index is expected to rise to 5% over the four quarters ending in September, but will begin to slow in 2009 as demand begins to slow.

The RBA also noted that demand and output will be weaker than initially expected as domestic economic activity slows and growth in China and other trading partners moderate.

""The Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2% to 3% target over time.

Separately, the Reserve Bank of Australia pumped in A$1.815 billion into the financial system as part of ongoing market operations to provide liquidity into the money market and ease lending conditions.

The RBA reported indicated that banks increased deposits held at the RBA by A$92 million to A$9.493 billion yesterday.

Australian Dollar Falls

The Australian dollar declined 2.7% to 72.45 cents against the U.S. dollar from 74.47 cents yesterday.

Gains & Loses

HFA Holdings led advancers in the ASX 200 index shares with a rise of 14.41% followed by increases in Macquarie CountryWide of 9.44%, in Great Southern Lines of 9%, in Panoramic Resources of 8.41%, and JB Hi-Fi Ltd of 7.66%.

Paperlinx Ltd led decliners in the ASX 200 index shares with a fall of 22.29% followed by losses in Babcock & Brown of 18.94%, in NRW Holdings of 14.75%, in Panaust Ltd of 11.11%, and Roc Oil Co. of 11.11%.

Commodity stocks slumped as oil and metal prices dropped on fears that demand for raw materials will slow. Riversdale Mining lost 9.70%, Minara Resources dropped 8.30%, in Newscrest Mining of 8.28%, and Paladin Energy of 7.34%.


Commonwealth Bank of Australia Engages HBOS

Commonwealth Bank of Australia reported today in a statement that the company has engaged HBOS to buy its BankWest unit. Banking sector analyst expect the purchase price around A$2 billion.