The Reserve Bank of Australia cut its benchmark interest rate to the half-century low set during the 2009 global recession as hiring falters and an elevated currency hurts industries such as manufacturing and tourism.
Governor Glenn Stevens and his board reduced the overnight cash-rate target by a quarter percentage point to 3%, the central bank said in a statement in Sydney today. The sixth cut in the past 14 months was predicted by 20 of 28 economists surveyed by Bloomberg. The rate matches the level reached from April-October 2009 that was the lowest since 1960.
In his statement, Stevens said the local dollar remains "higher than might have been expected" given lower export prices and a weaker global outlook. His decision to ease the highest policy rate among major developed economies reflects Australia’s contained wage
The so-called Aussie advanced after the decision, buying $1.0437 U.S. in Sydney compared with $1.0426 U.S. before the decision. The yield on three-year government debt advanced to 2.62%, up four basis points from yesterday. Australian financial stocks declined, with the S&P/ASX 200 Finance Index falling 0.5%.
The local dollar’s 62% climb in the past four years has hurt exporters, forcing them and other companies to adapt. The number of Australian construction jobs fell by 70,200 to 978,000 in the 12 months through August, helping lift the unemployment rate to 5.4%. Mining employment gained by 44,600 over the same period to 271,000, according to government figures.
Prime Minister Julia Gillard and Treasurer Wayne Swan have pressed the central bank to loosen monetary policy as the Labour government bids for a A$44-billion ($46-billion U.S.) swing in the budget back to surplus before an election due later next year. The government is seeking to benefit from lower borrowing costs in an economy where about 90% of mortgages have floating rates.
