Business

Wednesday April 8, 2009

Australia cuts rate to record low of 3%


SYDNEY: Australia’s central bank cut its key cash rate to a record low of 3% yesterday, the sixth easing in eight months, in an effort to cushion households from a shrinking economy and rising unemployment.

The Australian dollar firmed while bill futures dipped as some investors had wagered on an even bigger easing from the Reserve Bank of Australia (RBA), though markets were still pricing in further cuts toward 2.25%.

“This was a compromise between doing something now to respond to the unexpected recession we’re in and saving ammunition for the darker days that lie ahead,” said Rory Robertson, interest rate strategist at Macquarie.

“The RBA will be under pressure for a cut at every meeting for the next year as unemployment keeps rising,” he added. “This isn’t the end of the easing.”

Investors had been deeply divided on whether the central bank would move at its monthly policy meeting yesterday, after it skipped a chance to ease in March.

But RBA governor Glenn Stevens said the board saw scope for a further modest reduction given the grim outlook for the global economy and a weakening labour market at home. He also flatly noted that the domestic economy was contracting.

The latest cut brings the RBA’s easing to a massive 4.25 percentage points since September and leaves the official cash rate at its lowest since inception in 1990. The last time money market rates were this low was around 1960.

“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Stevens said in a brief statement announcing the decision. – Reuters


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