AUSTRALIA'S central bank cut its benchmark interest rate yesterday by a bigger-than-expected three-quarters of a percentage point as the global financial meltdown threatens to drag the country into recession.
It was the third time in as many months that the Reserve Bank of Australia slashed rates, and takes the cash rate to 5.25 percent.
Analysts had widely expected the bank to cut rates as the next step in a series of aggressive moves to protect the Australian economy from recent market turmoil brought on by the global credit crisis, but most thought the amount would be half a point.
"International economic data have continued to point to significant weakness in the major industrial economies," bank Governor Glenn Stevens said.
The earlier rate cuts, a plunge in the Australian dollar and a A$10.4-billion (US$6.9-billion) stimulus package announced by the government last month would help growth, Stevens said.
"But deteriorating international conditions and falling commodity prices will have a dampening influence" and cause weaker-than-expected economic activity, he said.
The Commonwealth Bank of Australia, the country's largest bank, immediately announced it would cut mortgage lending rates by half of the central bank's reduction.
Other banks said they were reviewing rates.
Treasurer Wayne Swan urged banks to pass on the rate cut in full to borrowers to protect the economy from the worldwide downturn.
"This is the additional rate relief that Australian families and businesses need in the face of the global financial crisis," he told reporters in Canberra. "It will strengthen our economy at a vital time."
The announcement helped lift stocks off their lows. The benchmark S&P/ASX200 index finished down 0.15 percent at 4,215.1 points after dipping nearly 2 percent earlier.
The rate cut, announced after the bank board's latest monthly meeting earlier yesterday, came one day after a string of data reinforced fears Australia's economy is slowing quickly.
The data showed house prices rising at their slowest pace in almost three years, sliding retail sales and a sixth consecutive month of falling job advertisements.
Inflation last month climbed to 5 percent, its highest level in more than a decade.