Aus­tralia cuts in­ter­est rate to record low of 1.5%

The Myanmar Times - - International Business -

AUS­TRALIA’S cen­tral bank dropped in­ter­est rates to a new record low yes­ter­day after a re­cent run of soft in­fla­tion read­ings, with some economists fore­cast­ing fur­ther cuts ahead.

The 25-ba­sis-point cut to 1.5 per­cent means the Re­serve Bank of Aus­tralia (RBA) has slashed rates by 300 ba­sis points since Novem­ber 2011 to sup­port the econ­omy as it tran­si­tions to­ward non-re­sources growth after a min­ing in­vest­ment boom.

“The board judged that prospects for sus­tain­able growth in the econ­omy, with in­fla­tion re­turn­ing to tar­get over time, would be im­proved by eas­ing mone­tary pol­icy at this meet­ing,” bank gov­er­nor Glenn Stevens said in a state­ment. The de­ci­sion fol­lows of­fi­cial fig­ures last month show­ing that con­sumer prices fell to a 17-year an­nual low of 1.0pc in April-June, well off RBA’s in­fla­tion tar­get of 2.0-3.0pc.

Trea­surer Scott Morrison de­nied that the cut was a sign of a strug­gling econ­omy, say­ing that Aus­tralia was post­ing 3.1pc growth, while Mr Stevens said it was un­likely to over­heat the hous­ing mar­ket.

The ma­jor­ity of economists had forecast that the RBA, an in­fla­tion­tar­get­ing cen­tral bank, would cut in­ter­est rates, with 20 out of 25 sur­veyed by Bloomberg News pre­dict­ing the move.

Com­ment­ing on the global econ­omy, Mr Stevens noted that the un­der­ly­ing pace of growth in Aus­tralia’s largest trad­ing part­ner China “ap­pears to be mod­er­at­ing”.

Aus­tralia has been grow­ing more strongly than most of the world’s ad­vanced economies but like most coun­tries is strug­gling to kick­start in­fla­tion, with oil prices sub­dued and global trade tepid.

Wages growth has also re­mained soft, while “labour mar­ket in­di­ca­tors con­tinue to be some­what mixed but are con­sis­tent with a mod­est pace of ex­pan­sion in em­ploy­ment in the near term”, Mr Stevens said.

The rate cut is ex­pected to take some time to feed through to pos­si­bly push­ing up con­sumer prices, with the RBA’s own fore­casts in May ex­pect­ing in­fla­tion to only lift to­wards the tar­get band in late 2017 or in 2018.

Lead­ing Aus­tralian econ­o­mist, Bill Evans of West­pac Bank, said the RBA was ex­pected to sit on the side­lines and ob­serve the next few growth and in­fla­tion read­ings be­fore act­ing again, with un­cer­tainty about the global eco­nomic en­vi­ron­ment also a key fac­tor.

“For us the real is­sue will be the en­vi­ron­ment in 2017 when the hous­ing cy­cle will be in re­verse; jobs growth may have cooled; global growth, par­tic­u­larly in this re­gion, will have slowed fur­ther; and Aus­tralia’s in­ter­est rates may still be at­trac­tive to in­ter­na­tional in­vestors,” Mr Evans said. –

Photo: EPA

Glenn Steven says Aus­tralia's growth rate is mod­er­at­ing.

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