Australia's interest rates at lowest level since 2009
Source: Agencies |
May 2, 2012, Wednesday
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Print Edition
Print Edition
AUSTRALIA'S central bank cut interest rates by a surprising half a point yesterday and said inflation would likely be lower than expected for the next two years, leaving the door open for further easing if needed.
The Australian dollar fell about three-quarters of a cent and government bond yields hit 60-year lows as the Reserve Bank of Australia cut its cash rate to 3.75 percent, a level not seen since late 2009.
Driving the move was the need to get mortgage rates down to stimulative levels given that local banks have been nudging up their rates to cover higher funding costs.
Glenn Stevens, the bank's governor, said that a reduction of 50 basis points in the cash rate was "in this instance, judged to be necessary in order to deliver the appropriate level of borrowing rates."
A move had been widely expected given a background of benign inflation and disappointing economic growth.
"This 50 basis points move will lead to a decent reduction in borrowing costs," said Shane Oliver, chief economist at fund manager AMP Capital. "The economy is not certain to recover just because of this. We will probably see cash rates down to 3.25 percent by the year-end."
Rates are now the lowest since December 2009, but still far above those in the United States, Japan and Europe.
Yesterday's easing was warmly greeted by a Labor government trailing badly in the opinion polls yet set to deliver a tough budget next week aimed at returning to surplus years before most other developed economies.
The Australian dollar fell about three-quarters of a cent and government bond yields hit 60-year lows as the Reserve Bank of Australia cut its cash rate to 3.75 percent, a level not seen since late 2009.
Driving the move was the need to get mortgage rates down to stimulative levels given that local banks have been nudging up their rates to cover higher funding costs.
Glenn Stevens, the bank's governor, said that a reduction of 50 basis points in the cash rate was "in this instance, judged to be necessary in order to deliver the appropriate level of borrowing rates."
A move had been widely expected given a background of benign inflation and disappointing economic growth.
"This 50 basis points move will lead to a decent reduction in borrowing costs," said Shane Oliver, chief economist at fund manager AMP Capital. "The economy is not certain to recover just because of this. We will probably see cash rates down to 3.25 percent by the year-end."
Rates are now the lowest since December 2009, but still far above those in the United States, Japan and Europe.
Yesterday's easing was warmly greeted by a Labor government trailing badly in the opinion polls yet set to deliver a tough budget next week aimed at returning to surplus years before most other developed economies.
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