Reserve bank cuts cash rate
THE RESERVE Bank surprised many experts on Tuesday after it decided to cut the cash rate to a record low 2.75 per cent.
Economists were widely tipping that the cash rate would remain on hold at 3 per cents after Tuesday’s meeting, but the board’s decision will be popular with both consumers and retailers.
‘‘With the peak in the level of resources sector investment likely to occur this year, there is scope for other areas of demand to grow more strongly over the next couple of years,’’ RBA governor Glenn Stevens said.
‘‘(The bank) judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.’’
Stevens said inflation was currently running ‘‘lower than expected’’, with the exchange rate, on the other hand, ‘‘little changed at a historically high level over the past 18 months’’. It comes as the Federal Government downgraded its annual revenue forecasts, warning income had plunged $17 billion due to a China-driven commodity slowdown and pressures from the dollar. The decision had an immediate impact on the Australian dollar which fell below US102c. just after the announcement.