Shock as RBA slashes interest rates

Most economists had been expecting the Reserve Bank of Australia (RBA) to make cuts to interest rates, but the scale of the readjustment has shocked many people.

A reduction of 0.25 per cent had been on the cards, but the RBA has revealed that the official cash rate down under will now stand at 3.75 per cent – a 50-point drop.

The organisation had come under increasing pressure from business leaders and trade unions to sanction further cuts, after it opted not to make any changes in February, March and April.

RBA governor Glenn Stevens said that recent statistics relating to the consumer price index and inflation left the body little choice but to take action.

"This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated," he remarked.

However, it remains to be seen whether the Aussie on the street will actually benefit from the new rate, as many economists believe that the country's major banks will ignore the RBA's new framework.

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