■ ■ ■The Reserve Bank will be operating in the money market this morning to reduce overnight cash rates by 1 percentage point. This action follows a meeting of the Board yesterday and consultations with the Treasurer.
Over the past two years, cash rates have been reduced on eleven occasions, from 18 per cent to 7½ per cent. Most other interest rates have followed a broadly similar trend (see Attachment).
Banks and other financial institutions can be expected to adjust their lending rates as the effects of lower cash rates pass through to lower funding costs generally.
The latest reduction in official interest rates has been made against the background of signs of continuing sluggishness in the domestic economy, as well as further indications of a lessening of inflationary pressures. Included among the latter are the monthly product price indexes and long term security yields, which have fallen further over recent weeks.
In coming to its decision, the Board was also aware that the Government is proposing to make a statement soon which will aim both to assist the recovery and improve the economic environment for sustained, non-inflationary growth into the 1990s. The content of that statement will obviously be one important influence in shaping the future stance of monetary policy.
While lower interest rates will not on their own effect necessary structural changes, they will contribute to the recovery through improvements in cash flows and in business and consumer sentiment, and in those ways encourage increased investment and employment.
Source: Reserved Bank of Australia