Overnight the Australian dollar shredded 6.8% falling to a low of 69.85 tomorning.
30 minutes ago, the Reserve Bank of Australia announced that it would cut interest rates by a large 100 basis points. The new official cash rate would be just 6.00%. The last time we saw a fall this large was back in May 1992 and comes at a time when Rudd and crew keeps talking up that there is nothing wrong with our economy or the security of banks. 100 basis points is enough for anyone to question what is really going on, when market consensus was for a cut of 50 basis points.
In the reserve’s statement, it indicated the next CPI is likely to be 5% which would continue over the next four quarters until September 2009.
While a drop this big may be a welcome relief to mortgage holders, it is unclear how much of this rate reduction banks will actually pass on, and what this 100 basis point surprise will do to the already plummeting Aussie which will now likely impact imports such as Petrol.