• Australia central bank cuts interest rate to 2%

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    SYDNEY: Australia’s central bank cut its benchmark interest rate to a record low of 2.0 percent on Tuesday to try to reinvigorate the struggling economy as a long China-fuelled mining boom fizzles out.

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    Reserve Bank of Australia governor Glenn Stevens said the board considered that “the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand.”|

    The cut was forecast by most economists and Treasurer Joe Hockey insisted: “There are many green shoots . . . in the Australian economy.

    “This interest rate cut is going to help to facilitate those green shoots,” he added.

    Annual core inflation was 0.6 percent in the three months to March to take the year-on-year rate to 2.35 percent, which is within the RBA’s 2-percent to 3-percent inflation target band and gave the central bank room to ease rates.

    The Australian economy has endured a bumpy ride as it exits from an unprecedented mining investment boom that has helped the nation avoid a recession for more than two decades.

    But non-resources sectors have struggled to fill the gap left by mining, with the unemployment rate remaining high over the past year.

    The rate slipped to 6.1 percent in March, but had been gradually rising in recent months. It peaked at 6.3 percent in January—a more than 11-year high.

    The RBA decision comes a week before the federal budget, which is expected to point to shrinking government revenue amid tumbling commodity prices.

    End to easing cycle?
    The statement did not include an explicit easing bias, which could have suggested further rate cuts. Analysts said this prompted a rise in the Australian dollar and a fall in the stock market, which started the trading day strongly.

    The local currency eased to 77.88 US cents immediately after the decision but jumped back to over 79 US cents.

    The benchmark S&P/ASX200 dropped by 1.0 point, or 0.02 percent, to close at 5,826.5.

    “The biggest news is that there is no explicit policy guidance there,” JP Morgan’s chief economist for Australia Stephen Walters told Agence France-Presse.

    “So one interpretation is that they’ve delivered another rate cut and are suggesting that they’re finished. The commentary doesn’t sound that downbeat and it sounds pretty similar to what they’ve been saying the last few months.”

    ANZ bank’s chief economist Warren Hogan said the tone of the statement suggested the RBA did not want to cut rates again without a strong case.

    “It also suggests that in the absence of a shock, the RBA is probably now on the sidelines for some time,” Hogan said in a note.

    The Reserve Bank started its current easing cycle in November 2011, when interest rates were at 4.50 percent.

    AFP

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