Australia Cuts Rate to 3.25%; Stimulus Plan

Darlington Musarurwa
03 Feb, 2009
New York City

The Reserve Bank of Australia lowered its key lending rate by 100 basis points to 3.25%. The bank gave a weak economic conditions outlook. Separately, Australia unveiled A$42 billion plan to create jobs and investment in infrastructure. Stocks edged higher.

[R]3:00AM New York, 7:00PM Sydney- Australia cuts interest rate by 100 basis points to 3.25%. Government unveils A$42 billion Nation Building and Jobs Plan.[/R]

Australia stocks rose fractionally after the Reserve Bank of Australia slashed its key rate the most in 45-years on projections the domestic economy is weakening as the commodity boom is declining.

Stocks gained after the announcement of A$42 billion Nation Building and Jobs Plan. Financial and commodity stocks gained.

In Sydney trading ASX 200 index rose 0.3% or 11.3 to 3,508.70.

Of the ASX 200 index stocks, 73 increased, 109 declined, and 18 were unchanged. PMP Ltd. led gainers in the index shares with a rise of 14.1%.

Australia Cuts Interest Rates to 3.25%

Reserve Bank of Australia today elected to lower its cash rate by a further 100 basis points to 3.25% effective tomorrow.

The Bank noted that while the functioning of credit markets has improved over the past couple of months, the near term outlook for the global economy “is the weakest for many years”.

RBA Governor Glenn Stevens said the country''s financial systems remain in a strong condition, and large interest rate reductions have been substantially passed through to end-borrowers.

“In these circumstances, the Board judged that a further sizable reduction in the cash rate was appropriate, to give further support to demand. In making its decision, the Board took into account the package of measures announced by the Government earlier today. The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad,” commented RBA.

Australia Unveils A$42 billion Nation Building and Jobs Plan

Federal Treasurer Wayne Swan and Prime Minister Kevin Rudd today announced in a joint statement a A$42 billion Nation and Jobs Plan that is meant to prop economic growth and create the foundation for future economic expansion.

The U.S. led financial crisis has now engulfed most developed and developing nations in a global recession and Australia is likely to suffer a decline in exports and fall in government revenue.

Australian budget deficit is expected to be A$22.5 billion or 1.9% of GDP this financial year.

However the new plan is expected to support 90,000 jobs.

The plan calls for A$14.7 billion investment in school infrastructure and maintenance; A $6.6 billion to increase the national stock of public and community housing by about 20,000 new homes; A$3.9 billion to provide free insulation to 2.7 million homes and solar hot water rebates; A$890 million to fix regional roads; and A$2.7 billion for small business tax break to provide deductions for some equipment purchases before the end of June 2009.

An additional A$12.7 billion will provide for immediate one-time payments to working Australians, families with school-age children, farmers, single income families and for those undergoing training.

According to the report, government is angling for a series of five targeted bonuses for low and middle-income households to provide an immediate stimulus to the economy and jobs.

Government aims to support 2.8 million children though a A$950 back to school bonus and a training and learning bonus.

In addition, 500 new science laboratories and language learning centres in schools will be built and A$200,000 will be provided to every Australian school for maintenance and renewal of school buildings.

A$890 million will be availed to fund 350 additional projects under the Black Spot road safety program and the installation of 200 new boom gates at high risk level crossings, including local community infrastructure and maintenance on Australia''s national highway.

Gainers & Losers

PMP Ltd. led advancers in the ASX 200 index shares with a rise of 14.1% followed by increases in Murchison Metals of 12.6%, in Commonwealth Bank of Australia of 9.8%, in Riversdale Mining of 9.7% and CSR Limited of 9.2%.

Incitec Pivot led decliners in the ASX 200 index shares with a drop of 30.5% followed by losses in ING Industrial of 20%, in ING Office Fund of 17.7%, in Mirvac Group of 17.3%, and GPT Group of 16.5%.