THE Reserve Bank of Australia has slashed interest rates by 50 basis points — the largest cut since February 2009. The cash rate is now 3.75 per cent.RBA governor Glenn Stevens said the board deemed the cut to be appropriate for the current financial conditions and indicated it was necessary. The central bank has anticipated that commercial lenders would not pass on the cut.”A reduction of 50 basis points in the cash rate was, in this instance, judged to be necessary in order to deliver the appropriate level of borrowing rates,” Mr Stevens said.

“Since it last changed the cash rate in December, the board has maintained the view that the setting of policy was appropriate for the time being, but that the inflation outlook would provide scope for easier monetary policy, if needed, to support demand. The accretion of evidence over recent months suggests that it is now appropriate for a further step in that direction.”

Mr Stevens said the decision was based on information received over the past few months that suggested economic conditions to be weaker than expected.

“As a result of changes to monetary policy late last year, interest rates for borrowers have been close to their medium-term averages over recent months, albeit tending to increase a little as lenders passed on the higher costs of funding their books,” Mr Stevens said.

“Credit growth remains modest overall. Housing prices have shown some signs of stabilising recently, after having declined for most of 2011, but generally the housing market remains subdued.”

Borrowers will now have to wait and see if the banks will pass on the reduction.