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To the surprise of the majority of analysts and economists yesterday The Reserve Bank lowered the cash rate by 25 basis points to 3.25%, the lowest rate in three years, and the 5th cut in the past 12 months.

In a statement accompanying the decision, RBA governor Glenn Stevens said a modest outlook for inflation – which is expected to remain within the target range of two to three per cent in 2013, provided room to cut the cash rate in response to weaker global economic growth.

RBA governor Glenn Stevens said the outlook for growth has “softened” and the country’s 5.1 per cent unemployment level looks set to rise in the coming months.

“Economic activity in Europe is contracting, while growth in the United States remains modest. Growth in China has also slowed and uncertainty about near-term prospects is greater than it was some months ago,” he said.

Despite growth in Australia running at close to trend, Mr Stevens in a memo warned the property sector remains subdued – even though there have been some tentative signs of improvement.

HSBC Australia chief economist Paul Bloxham said the RBA’s statement suggested it remained comfortable with the outlook for the Australian economy.

The news followed the release yesterday of the RP Data-Rismark data showing that capital city dwelling values rose 1.4% in September, the fourth consecutive month of increases and the largest monthly increase since 2010.

The decision is great news for borrowers. The cut also boosted the share market with Australian stocks hitting a five month high on close, resources stocks were also boosted by better than expected US manufacturing data.

Troy Phillips

Author Troy Phillips

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