Australia slashes interest rates to combat its strong currency
WEAK economic growth and falling inflation made room for the Reserve Bank of Australia (RBA) to cut interest rates sharply yesterday.
The Australian dollar plunged on the announcement of an unexpectedly large 50 basis point rate cut to 3.75 per cent, which should help boost exports.
“Output growth was somewhat below trend over the past year,” said RBA governor Glenn Stevens.
Although domestic demand remained high, the “persistently high exchange rate” was damaging growth, he said.
Analysts predicted this large cut will not be followed up any time soon, as the RBA expects inflation to stay below three per cent.
“Having done 50 basis points in one hit and so having taken interest rates into the stimulatory zone, the RBA can now pause and review the impact on the economic outlook,” said Citi’s Paul Brennan.
“In our view rates are now on hold barring a substantial deterioration in the global backdrop, a further decline in inflation domestically and a significant rise in unemployment.”