As predicted by economists, the Reserve Bank of Australia’s rate decision resulted in a rate cut, with the RBA’s benchmark interest rate being knocked back to 2009’s fifty-year low.
In recent weeks a faltering resources boom, elevated currency and stagnating hiring have caused concerns about the Australian economy.
Yesterday, in an attempt to combat the issues, the Australian central bank cut its overnight cash-rate target for the sixth time in just over a year. It now stands at 3 per cent after being dropped by 0.25 per cent.
After the announcement Treasurer Wayne Swan told reporters: ‘We understand that not everybody in business or out there at work is on easy street but having much lower interest rates than we’ve had, particularly under the Liberal Party, is a big win for Aussie families.’
Swan and Prime Minister Julia Gillard have been pushing for the RBA to loosen monetary policy.
RBA Governor Glenn Stevens issued a statement along with the decision in which he highlighted that the Australian Dollar remains ‘higher than might have been expected’ in light of an unstable global outlook and decreasing export prices.
In the last four years the ‘Aussie’ has climbed by a whopping 62 per cent, a situation which has been highly damaging to exporters.
In response an interest-rate strategist with Nomura Holdings asserted: ‘The cut is an attempt to smooth the transition from resources to the broader sectors of the economy that are currency and interest-rate sensitive. There feels like there’s a level of frustration in the statement about the currency’
Stevens further stated: ‘The near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued […] Looking further ahead, with the labour market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labour costs. Public spending is forecast to be constrained.’
The RBA governor continued: ‘Looking ahead, recent data confirms that the peak in resource investment is approaching. As it does, there will be more scope for some areas of demand to strengthen. Private consumption spending is expected to grow, but a return to the very strong growth of some years ago is unlikely […] there are indications of a prospective improvement in dwelling investment, with dwelling prices moving a little higher, rental yields increasing and building approvals having turned up […]There are signs of easier conditions starting to have some of the expected effects […] While the full effects of earlier measures are yet to be observed, the board judged at today’s meeting that a further easing in the stance of monetary policy was appropriate now.
Following the news the Australian and New Zealand Dollars advanced on the majority of their most traded counterparts.
As of 10:40 am
The Pound to Euro exchange rate is currently trading at 1.2330
The Pound to US Dollar exchange rate is currently trading at 1.6124
The Pound to Australian Dollar exchange rate is currently trading at 1.5389
The Euro to US Dollar exchange rate is currently trading at 1.3074
The Euro to Pound exchange rate is currently trading at 0.8107
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