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Bank reserved on rates -

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Reporter: Peter Ryan

ELEANOR HALL: The Reserve Bank has signalled a possible easing of its interest rates cutting
strategy as it continues to assess the depth of the global economic crisis.

In the minutes of its most recent meeting, the RBA board said it would be scrutinising the
effectiveness of emergency measures, including the Federal Government's $42-billion stimulus

Business editor Peter Ryan has been at this morning's Reserve Bank lockup and he joins me now in
the studio.

Peter, the Government announced its $42-billion package just at the same time as this month's
interest rate cut. How did that affect the RBA's thinking?

PETER RYAN: Well Eleanor, when the RBA board met this time two weeks ago to decide on the depth of
the interest rates cut, they received a special briefing from the Treasury Secretary Ken Henry who
is also a member of the board.

The board knew the package would be announced later in that day, coinciding with the rates
decision; because of the increasingly grim situation overseas and they spoke of a highly
synchronised slowdown and a common economic shock.

As we now know, it was a double whammy day on Tuesday a fortnight ago. A one percentage point cut
to official rates from the Reserve Bank and then a $42-billion stimulus package from the Federal

In the minutes, the board noted that the fiscal measures announced by the Federal Government would
result in a 'significant boost to demand in 2009' and along with the 400 basis points in interest
rates cuts since September, there had already been a very significant easing in monetary policy.

And the general theme of the meeting, that I have gathered from the minutes, was that monetary and
fiscal policy are on the right track or the board saw them as being on the right track, despite the
deteriorating economic situation in the United States and most of the industrialised world.

ELEANOR HALL: The Government's stimulus package though did have a rough ride through the Senate. Do
the minutes give any indication of individual board members' views of the package?

PETER RYAN: Interestingly, the board noted that the stimulus would take some time to be effective
and that it could only be expected to have a modest affect on the near term in Australian and the
board also noted that short-term prospects for the economy were still very weak for demand and

And just last week in the quarterly statement on monetary policy the Reserve Bank has revised
downwards its projections to economic growth to half of one per cent this year.

But the board seemed to agree that the measures would establish conditions conducive to stronger
demand later this year.

ELEANOR HALL: So what do these minutes indicate about the outlook for further rate cuts?

PETER RYAN: Well, while highlighting the very worrying economic headwinds, the board appeared to be
looking back at what has been a very steep rates cutting strategy down from 7.25 per cent in
September to now 3.25 per cent and just how effective those rate cuts have been.

And it highlighted that lending rates are now at their lowest levels since the 1960s. While also
noting market expectations, the official rate could fall to two per cent this year.

However, it made the point in the final paragraph of the minutes that it would be assessing the
mid-term prospects as well as short-term data as something 'very important' as it sits back and
assesses future policy directions for interest rates and the interpretation of that is that the
Reserve Bank may well stay on the sidelines for the next month or so and the market is expecting,
at best, possibly a cut of half a percentage point when the board meets next March.

So the days of full one percentage point cuts may have come to a close.

ELEANOR HALL: Peter Ryan, our business editor. Thank you.