Australia Central Bank Cuts Interest Rate to 3.0%

Australia Central Bank Cuts Interest Rate to 3.0%


Australia’s central bank cut the official interest rate by 25 basis points to a record low of 3.0 percent, a level not seen since the depths of the financial crisis in 2009.

Reserve Bank of Australia governor Glenn Stevens said ongoing troubles in Europe and the United States were overshadowing global growth prospects, with risks seen to the downside and local spending “relatively subdued” as a result.

“The board judged at today’s meeting that a further easing in the stance of monetary policy was appropriate now,” said Stevens following the bank’s monthly rates meeting.

“This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time.”

The cut brings rates to their equal lowest point since the bank began independently setting interest rates and targeting inflation in the early 1990s.

Rates were last this low in September 2009, at the bottom of a savage 425-basis-point series of reductions over seven months to cope with the global downturn, which Australia narrowly escaped without going into recession.

At that time Treasurer Wayne Swan described rates as being at “50-year emergency lows”.

He sought to play down a “scare campaign” Tuesday suggesting that the economy was again in strife, emphasising the bank’s assessment that Australia was growing at trend pace and that global conditions were far less dire.

“Let’s go back to the global financial crisis – the global economy fell off a cliff, global growth was -0.6 percent back then. Global growth is just below trend right now,” Swan told reporters.

Swan conceded that he “wouldn’t be surprised if we saw a slight moderation in growth” in the third quarter of 2012 when official gross domestic product data is published on Wednesday.

“But when you’ve got low unemployment, when you’ve got contained inflation, when you’ve got a strong investment pipeline and when you’ve got strong public finances the glass is more than half full.”

The Australian dollar jumped to US$1.0444 from $1.0421 before the decision.

Stevens said Chinese growth looked to have stabilised but Asia was lagging as a result of its slowdown, with prices for Australia’s key commodities “significantly lower”, reducing the value of its exports by about 15 percent.

Recent data confirmed that the “peak in investment is approaching” for the key mining sector and consumer spending was unlikely to return to the boom times seen some years ago, added Stevens.

“Available information suggests that the near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued,” he said.

The labour market was softening and unemployment was “edging higher”, he said, noting that the Australian dollar still remains “higher than might have been expected” in the circumstances and was squeezing non-mining industries.

Vas the mining industry slows and the government cuts spending in a bid to return to surplus.

“Even lower rates will be needed to boost the non-mining sectors of the economy as the mining boom fades at a time when the Australian dollar remains strong and fiscal cutbacks are intensifying,” said AMP Capital chief economist Shane Oliver.

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