Minutes show RBA cut 50 basis points because it knew banks wouldn’t: Midday roundup

The Reserve Bank says it cut 50 basis points from the official cash rate last month because it knew the banks wouldn’t pass on the full rate to consumers, according to the bank’s latest minutes.

The minutes show it had accumulated information on demand and inflation, and judged that it was necessary for monetary policy to be relaxed.

“Members noted that interest rates faced by the general community had tended to increase a little since the board’s previous change to the cash rate in December,” the minutes state.

“They judged it to be desirable that interest rates move below those that had prevailed in December.”

“Accordingly, the board decided that a reduction of 50 basis points in the cash rate was, in this instance, necessary in order to deliver the appropriate level of borrowing rates.”

The minutes also noted the board found conditions were weak in the euro zone, “and the risk of an escalation of sovereign debt problems remained”.

“At previous meetings, members had agreed that if slower growth in demand resulted in more moderate inflation, it would strengthen the case for a further easing in monetary policy.”

Pacific Brands shares fall 7.4% after takeover talks end

Shares in Pacific Brands have fallen 7% to 57.5 cents this morning after it announced takeover talks with parties including private equity firm KKR have ended with no offer being made.

“Having explored these enquiries, the board of Pacific Brands has concluded that a definitive proposal for the acquisition of the entire issued capital of the company is unlikely to be forthcoming in the near-term,” the company said in a statement.

Sharemarket falls as euro fears hit world markets

The Australian sharemarket has fallen this morning after fears about the political situation in Greece impacted world markets, including the United States, last night.

The benchmark S&P/ASX200 index was down 38.7 points or 0.9% to 4258.3 at 12.00 AEST.

In the United States, the Dow Jones Industrial Average fell 125.2 points or 0.98% to 12,695.35.

Dollar continues to fall over Greece fears

The dollar has continued to fall over fears Greece may not be able to reach a political agreement in order to receive bailout funds.

The dollar fell below parity yesterday, while at 12.00 AEST it was trading at $US0.9969c.

European Union urges Greece to stand by euro

European Union finance ministers have called on Greece to stand by the euro as it attempts to deal with its political turmoil in the hope of winning assistance from the euro zone.

While Greeks had voted for parties that promised an end to austerity measures, the euro zone has warned these measures must be implemented if the country is to receive financial assistance.

Both the EU and International Monetary Fund want to see the country introduce reform and measures to cut the deficit, in order to receive a 173 billion euro bailout.

“Nobody was mentioning an exit of Greece from the euro area. I am strongly against,” Luxembourg prime minister Jean-Claude Juncker said after a meeting of finance leaders.

This comes after European Commission president Jose Manuel Barroso suggested last week on Italian television that Greece could be kicked out if it did not respect the rules of the euro zone.