US announces recession, Australia makes its move

The official announcement that the US is in recession has sent stock markets into a plunge, forcing the Reserve Bank of Australia to cut interest rates.

The financial crisis, which sent shockwaves around the world, is still being felt as the US officially announced that they were in recession.

While the Dow Jones was hit the hardest, losing 680 points, the Australian stock market fell 3 per cent this morning following the announcement.

The Aussie dollar also fell in value, trading around 64 US cents by noon.

With the current financial climate and all the economic factors – a weakening dollar, falling stock market and the erosion of savings – the Reserve Bank of Australia has been tipped to slash interest rates, set to be announced later today.

Economists have tipped cuts from three quarters of a per cent to as much as 1.5 percentage points.

A cut of 1 percentage point would mean a household on a $400,000 mortgage would be around $200 a week better off than in August.

Brian Redican, a Macquarie Equities economist, said the combination of government handouts, cheaper petrol and lower interest rates would add about 8 per cent to the average household income.

Sources: SMH, The Australian