THE Reserve Bank of Australia has slashed official interest rates for the first time since June, in response to a worsening outlook for the global economy. 

The RBA cut the cash rate by 0.25 percentage points to 3.25 per cent for October –  the lowest in three years – in a move that should come as a huge relief for borrowers.

In a statement released today, RBA Governor Glenn Stevens says credit growth has “softened of late.”

“The exchange rate has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook,” he says.

Stevens says Australia’s national income has been slashed by falling commodity prices, a factor that forced the cut in interest rates.

“The terms of trade have declined by over 10 per cent since the peak last year and will probably decline further, though they are likely to remain historically high,” he says.

“Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.”

National Retail Association Executive Director Trevor Evans says the decision “would help to save local jobs”.

“The decision by the RBA to cut rates will give Australian retailers some much-needed breathing space,” he says.

“The Reserve Bank has recognised that trading conditions remain poor and many retailers are struggling as they approach the most important trading period of the year.

“The Christmas and New Year sales will be critical for retailers, as traditionally up to 25 per cent of their yearly earnings is made around this time.”

Real Estate Institute of Australia President Pamela Bennett says the cut means the average home loan repayment will be reduced “from $2,155 to $2,105 or by $50 per month.”