Australia cuts interest rates as financial woes mount

SYDNEY: Australia���s central bank cut its benchmark interest rate by a larger-than-expected three quarters of a percentage point, the third reduction in as many months, amid evidence that global financial turmoil is buffeting the economy.

Governor Glenn Stevens lowered the overnight cash rate target to a 3 1/2-year low of 5.25% in Sydney on Tuesday, adding to last month���s 1 percentage point reduction. Falling house prices and retail sales plus October���s 14% slump in the All Ordinaries stock index, the biggest drop since 1987, have prompted Stevens to undertake the most aggressive round of rate cuts since the economy was last in a recession in 1991. The US, China, India, Japan and South Korea all lowered borrowing costs in the past week. ���The Reserve Bank will have to ease policy further,��� said Helen Kevans, an economist a JPMorgan Chase in Sydney. ���We are forecasting a recession.���

Weighing up international and domestic developments, the central bank ���board judged that a further significant reduction in the cash rate was warranted,��� Stevens said in a statement on Tuesday.

���It appears likely that spending and activity will be weaker than earlier expected,��� he added. The Australian dollar fell to 66.51 US cents in the evening in Sydney from 67.17 cents before the decision was announced. The currency has tumbled 32% since hitting a 25-year high of 98.49 cents on July 16.