Australia’s central bank lowered its key interest rate by 25 basis points to a record low level of 1.50% amid signs of slower economic growth, record-low inflation and delaying labor market. The monetary measure was largely expected by the economists and did not surprised the markets. However, the appreciation of the Australian dollar in recent weeks could complicate efforts to support the economy, which is highly relying on exports of raw materials and crude oil.
“The recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term. Recent data confirm that inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.”, said the Governor of Reserve Bank of Australia, Glenn Stevens. “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”, added he.
The bank’s board hopes the further cut will boost the labour market and economic growth. The Australian economy has been moving towards growth less dependent on commodities after the end of an unprecedented mining boom.
Official figures last week showed core annual inflation hit 1.5% in the second quarter, well below the RBA’s 2% to 3% target band. Policy makers worry low inflation could feed into wage and price-setting behaviors of businesses and households. Current central-bank forecasts don’t have inflation returning to the band until mid-2018 at the earliest. Australia created roughly 7,000 jobs a month on average this year, compared with more than 30,000 a month in the second half of 2015.
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