Australia’s central bank cut its benchmark interest rate by one-quarter of a percentage point to a record-low 2.5 percent yesterday because of slower growth and weakening commodity prices.
The Reserve Bank of Australia’s decision was made at a monthly board meeting in the first week of a federal election campaign and was expected by most economists.
The bank last cut the Official Cash Rate, which is a benchmark for commercial lending rates, by one-quarter of a point in May, following four cuts last year.
In a statement, Reserve Bank of Australia Governor Glenn Stevens said economic growth was below the long-term trend level of 3 percent, as the economy adjusts to lower levels of mining investment, but added that there was a “reasonable prospect” of it picking up next year.
Australia has enjoyed a decade-long boom in mining and related construction that helped it avoid recession during the global financial crisis. However, growth is now slowing as China’s economy cools and drags down prices for commodities such as iron ore and coal.
The Australian government last week nearly doubled its budget deficit forecast for the fiscal year through June next year to A$30.1 billion (US$26.8 billion), as slowing growth weighs on tax revenues.
Stevens said the Aussie dollar was still quite high despite falling by 15 percent since April. The Australian currency was little changed at just below US$0.90 immediately after the rate announcement.
“It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy,” he said.
Canberra last week downgraded its growth forecast for the current fiscal year beginning on July 1 from 2.75 percent to 2.5 percent.
The 2.5 percent policy rate is the lowest since the central bank’s inception in 1960.