RBA Cuts Interest Rates to 2.75 percent

RBA Cuts Interest Rates to 2.75 percent

interest-rates-cut

The Reserve Bank has slashed interest rates by 25 basis points to a historic  low of 2.75 percent, the first reduction this year.

The decision followed a spate of soft economic data that increased calls by  industry groups and other observers for a lower cash rate.

Financial markets and economists have been split over whether the central  bank would continue its easing cycle, which has seen 175 basis points of cuts  since November 2011.

The Australian dollar fell below 102 US cents following the decision. It was  hovering at about 102.38 US cents just before 2.30pm.

“The Board has previously noted that the inflation outlook would afford scope  to ease further, should that be necessary to support demand,” RBA governor Glenn  Stevens said in a statement.

“At today’s meeting the Board decided to use some of that scope. It judged  that a further decline in the cash rate was appropriate to encourage sustainable  growth in the economy, consistent with achieving the inflation target.”

This is the first time the central bank has cut interest rates below 3 per  cent since it began setting monetary policy.

Mr Stevens added that while an easing in interest rates has flowed through to  the economy, the Australian dollar remained at a “historically high level over  the past 18 months”.

“Moreover, the demand for credit remains, at this point, relatively subdued,”  he said.

Financial markets were pricing in a 50 per cent chance of a 25 basis  points  reduction for May, and tipping at least 50 basis points of cuts  by the end of  the year.

In figures released today, Australia’s trade balance hit a surplus of $307  million in March after a $111 million deficit in February.

At the same time, Australian house prices edged 0.1 per cent higher in the  March quarter but lower than economists’ expectations, echoing fears of tepid  growth in the sector.

The chief executive of Australia’s largest building product supplier, Mike  Kane, yesterday warned that housing demand had stalled and could be going  backwards despite the recent rate cuts.

Data released yesterday showed that seasonally adjusted retail sales data for  March was softer than expected, as job advertisements fell in April for the  second consecutive month and inflation for the same month remained subdued.

Retail trade volumes, which represent sales excluding inflation, rose 2.2 per  cent, the strongest quarterly increase since March 2007.

[blue]Source: The Age[/blue]