Australian central bank cuts rates to record low

Tue Aug 6, 2013 12:52am EDT
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By Wayne Cole

SYDNEY (Reuters) - Australia's central bank cut its main cash rate by a quarter point to a record low of 2.5 percent on Tuesday as it tries to prepare the economy for life after the mining boom.

The Australian dollar edged up on the news as the market had considered it almost certain the Reserve Bank of Australia (RBA) would cut rates at its monthly policy meeting.

"The Board has previously noted that the inflation outlook could provide some scope to ease policy further, should that be required to support demand," RBA Governor Glenn Stevens said in a brief statement.

"At today's meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate."

This was the eighth move in an easing cycle that began back in November 2011 and takes rates below the depths hit during the global financial crisis.

Markets have already baked in another move to 2.25 percent by Christmas and there is no hint of a tightening priced in for at least the next year.

That outlook is reflected in government bond yields, with the cost of borrowing out for one year hitting an all-time low of 2.24 percent this week. Even two- and three-year yields are under the cash rate.

In large part, Australia is a victim of its own good fortune. Its embarrassment of natural resources were just what China needed to fuel its growth miracle, leading to a truly massive boom in mining.   Continued...

An office worker walks past the Reserve Bank of Australia (RBA) building in central Sydney April 2, 2013. REUTERS/Daniel Munoz