The Reserve Bank has cut the official interest rate this afternoon by 25 basis points to 3%, in a move widely anticipated by economists as a cautionary move by the central bank to ward off a struggling economy.
The announcement comes after a slew of negative data, including poor job ads rates and retail sales.
In a statement, governor Glenn Stevens said that with global growth forecast to below average for some time, and with “dampened” growth in Asia, it was a good time to adjust rates.
“Key commodity prices for Australia remain significantly lower than earlier in the year, though trends have been more mixed over the past few months. The terms of trade have declined by about 15% since the peak, to a level that is still historically high,” he said.
And although Stevens said sentiment in financial markets remains better, there is still weakness in Europe which is set to be a “source of instability for some time”.
Looking ahead, the RBA said the peak in resource investment is approaching, and that it is unlikely private consumption spending will return to the growth levels seen in the past.
“Available information suggests that the near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued.”
While there are signs of easier conditions, the economy has been impacted by a higher exchange rate and a decline in export prices, along with the weaker global outlook – all of which contributed to the decision to cut rates.
“This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
