Australia central bank again cut rates

The central bank in Australia cut its benchmark cash rate by a large 75 basis points on Tuesday, in an urgent effort to save the economy from the recession that is swiftly swallowing much of the developed world.

The Australian dollar plunged as rates were cut to 5.25 percent while the total easing of 2 percentage points in just two months was the most aggressive in more than a decade.

Investors see the Reserve Bank of Australia's boldness as a sign that further cuts were coming and bill futures jumped to price in rates of 4.0 percent by mid-2009.

"We think the cash rate will bottom at 4 percent by early next year," said Stephen Halmarick, co-head market economics at Citi. "They are obviously very concerned about the outlook for global growth, I think that is warranted."

RBA’s cuts to control recession

Following its monthly policy meeting, the RBA said new economic data pointed to a darkening in the global outlook, with China and emerging economies slowing as well.

Australia's easing follows cuts in the United States, China, India and Japan last week and comes in advance of similar reductions in the UK and euro zone on Thursday.

"A growing number of indicators have fallen off a cliff in October," said Rory Robertson, interest rate strategist at Macquarie. "Indeed, each of the big developed economies now is either in a severe recession or well on the way."

"The RBA must be worried about the growing risk of recession here and is trying to nip it in the bud," he added. "We see central banks cutting aggressively, towards 4 percent in Australia and 2 percent in the UK and the Euro-zone."