Official Cash Rate down to 3.5%

The Reserve Bank of Australia (RBA) at its meeting this afternoon reduced interest rates by 25 basis points.  This follows the 50 basis point reduction last month.  The official cash rate is now at 3.5%.

Recent indicators suggest further weakening in Europe and some further moderation in growth in China.  Conditions in other parts of Asia have largely recovered from the effects of last year's natural disasters, but the ongoing trend is unclear and could be dampened by slower Chinese growth.  The United States continues to grow at a moderate pace. 

Commodity prices have declined lately and Australia's terms of trade similarly peaked about six months ago, though they remain histroircally high.  Financial senitment has dederiorated over the last month.  

The big question now is, just how much of today's rate cut will lenders pass on.  Last month the average cut delivered 0.38 per cent, despite the Reserve Bank slashing rates by 0.5 per cent.