The Reserve Bank of Australia (RBA) announced a cut in interest rates Tuesday by 25 basis points to a record-low of 1.50% from 1.75%. The central bank’s decision, taken at its August monetary policy meeting Tuesday, was that “prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy.”
The decision had been anticipated by a majority of economists and investors in financial markets.
RBA governor Glenn Stevens said after Tuesday’s monetary policy meeting in Sydney that very subdued wages growth at home and very low cost pressures globally meant inflation was expected to remain quite low for some time.
The RBA’s move followed disappointing data on house building approvals and trade earlier in the day, and the construction industry is likely to welcome the prospect of cheaper loans for prospective homeowners.
Aussie Drops Sharply
The Australian dollar fell sharply on the announcement to US75.06c, although it had recovered the ground within an hour to sit at US75.36 at 3.30pm. The yield on the three-year government bond dropped as much as 10 basis points to a record 1.36 percent.
The local share market also saw some volatility. After rising on the release of the governor’s statement, the ASX/S&P200 benchmark index fell back again to 5,546 points, or a fall of 0.73% on the day.
The Australian dollar’s recent strength had been bolstered by the Federal Reserve’s hesitancy to tighten U.S. policy since December while Europe and Japan have moved to negative rates and extended bond-buying programs.