Page last updated at 05:57 GMT, Tuesday, 2 September 2008 06:57 UK

Australia lowers interest rates

House being built in Sydney
The interest rate cut is expected to help homebuyers

Australia's central bank has cut interest rates for the first time in seven years as its economy slows.

The Reserve Bank cut rates to 7% from 7.25% to spur growth amid poor retail sales, weak business confidence and slower jobs growth.

Prime Minister Kevin Rudd said the rate cut would be a relief for homebuyers but warned that there would be more tough times ahead for the economy.

Analysts said high inflation would make further rate cuts difficult.

Australia's central bank, like its counterparts in Europe and the US, faces the challenge of balancing slower economic growth with the threat of inflation because of high food and energy prices.

"Weighing up the available domestic and international information, the Board judged that there was now scope for monetary policy to become less restrictive," said the Reserve Bank's governor Glenn Stevens.

The central bank had increased the cost of borrowing as recently as March, lifting rates to a 12-year high as it battled a pick-up in inflation.

But the last few months have also seen household spending fall in the face of record petrol prices and the rising cost of living.

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