Second rate cut seen with EU crisis

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) November 7, 2011 -- It could never have been timelier for the Reserve Bank of Australia to have its first interest rate cut in two and a half years. This is after the eurozone had taken another turn for the worse as it fears that Greece will overturn its own debt rescue package.

The cash rate was cut by 25 basis points on Tuesday after its monthly board meeting. However, after just a few hours from this move, Greece’s Prime Minister, George Papandreou, called for a referendum on the bail-out package that was agreed less than a week ago by European leaders.

A drop of more than 1.5 percent was experienced by Australia after a near-three percent fall in US exchanges. As for the European bourses, a seven percent slump was experienced.

“This is a very negative development for the eurozone and could push Europe into recession, unless the situation is resolved quickly,” said National Australia Bank (NAB) Capital Chief Economist, Rob Henderson.

“This would have a negative impact on Asia and hence Australia’s prospects as well,” he added.

Joe Hockey, Opposition Treasury Spokesperson, said that these events in Greece are causing concern.

“It seems as though the government is holding a referendum simply to shore up its community approval rather than getting the best economic outcome for Greece,” said Mr. Hockey.

“It would prove a tipping point in Europe, and whilst the rest of Europe with all the goodwill in the world can try and manage the Greek debt, if the Greeks don’t want to manage their own debt then that raises very serious concerns,” he added.

The Australian banks that had already passed on the RBA’s 25 basis point cut fully are being commended by Finance Minister Penny Wong. He adds that the rest have no reason for not being able to follow. These banks include the ANZ, Westpack and Commonwealth Bank of Australia.

“The government has insured that the bank has space to move given our very clear fiscal consolidation strategy,” Senator Wong said.

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