With bank rates in Europe, Japan and the USA at, or barely above zero, it is easy to forget that some economies are running interest rates which resemble normalcy (still others, such as Russia and India have significant interest rates to deal with other challenges). One of these economies would be Australia, which ranks as the 18th richest in the world in terms of GDP purchasing parity and 12 in terms of the size of the economy (GDP $1.48 trillion; IMF).
Australia’s was the only major economy to avoid recession during the Global Financial Crisis, but in a totally interconnected world, it was not immune from job losses, stress caused by disruption to the financial system and subdued demand for Australia’s raw material exports as global demand for manufactured products stuttered. Investment in the mining sector has also slowed and unemployment rose in November to (a still modest) 6.3% which represents a 12 year high – i.e. a greater level than seen at the worst of the Global Financial Crisis.
The Reserve Bank of Australia (RBA) has trimmed its interest rate by 0.25% to stand at 2.25% in a bid to stimulate the economy by lowering the cost of borrowing. Australia’s Q3 growth figure came in at 2.7% rather than the 3.1% (year-on-year) level that analysts had anticipated, so the Bank’s move was expected. Rates had been on hold for the past 18 months.
In a statement released on Tuesday, RBA governor, Glenn Stevens, noted: "The available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate has gradually moved higher over the past year”.
As markets digested the news, the Australian Dollar fell to a six year low against the recently rampant Greenback of $0.765 and the S&P ASX 200 stock exchange index rose by 1.3% to hit a seven-year high.