Australia cuts rates to 4.75 percent

Reserve Bank governor Ian Macfarlane said global economic conditions had been "weaker than expected" recently

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Australia's Reserve Bank cut interest rates by a quarter of a percentage point Wednesday, bringing the cash rate down to 4.75 percent.

It was the fourth rate cut this year and means rates have fallen by 1.5 percentage points since January.

But the bank had not moved on rates since April, even though central banks in the U.S. and Europe continued to cut rates in recent months.

The comparable cash rate in the U.S. is 3.5 percent -- down 3 percentage points this year -- and 5 percent in the U.K.

Global conditions 'weaker than expected'

RBA governor Ian Macfarlane said international economic conditions had been weaker than expected in recent months.

"The US and European economies stopped growing in the middle of the year, while a number of economies in Asia are experiencing recession," he said.

Macfarlane said that while most observers still expect an upturn ahead, the timing of this was being pushed back.

The move by the Reserve Bank had been largely anticipated by the market.

SG Securities chief economist Glenn Maguire told CNN after the announcement that Australia was likely to see economic growth of 2.1 percent in 2001 and up to 4 percent in 2002.

Australian business confidence higher

Maguire said Australia was likely to be one of the strongest growing economies among the industrialized nations, but the U.S. outlook remained a key determinant.

While Australian business confidence was higher and domestic demand had picked up after a temporary decline in the second half of 2000, Macfarlane said the Australian economy would still be affected by what he called "the recent deterioration in the international environment."

He said some easing of monetary policy was called for.

"In reaching its decision, the board carefully weighed one other factor, namely the rapid pace of borrowing by households and the associated pressure on house prices," Macfarlane said.

"A further reduction in interest rates runs some risk, at the margin, of unnecessarily boosting this trend in the short term.

"But this risk has to be set against those which would come over the medium term from not responding to the likely effects of the continuing weakness abroad."

He said that on balance, the Reserve Bank board believed the rate cut would help maintain the Australian economy's medium-term performance.