RBA Cuts Key Rates

The Reserve Bank of Australia cut its benchmark interest rate by a quarter percentage point to the lowest since 2009 as Europe’s debt crisis and slower Chinese growth overshadowed a stronger domestic labor market.

Governor Glenn Stevens and his board lowered the overnight cash rate target to 3.5 percent, the RBA said in a statement in Sydney today. Thirteen of 27 economists surveyed by Bloomberg News predicted the move, while four forecast a half-point reduction and 10 expected borrowing costs to remain unchanged.

“Europe’s economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks,” Stevens said in the statement. In Asia “the ongoing trend is unclear and could be dampened by slower Chinese growth,” he said.

The local currency and stocks maintained earlier advances after Stevens’s second rate reduction in as many meetings. Australia’s economy is giving mixed signals, with the unemployment rate at a one-year low of 4.9 percent and an investment pipeline worth almost A$500 billion ($489 billion) driving growth in some regions, even as export prices have slumped, building approvals dropped and retail sales weakened.

Bloomberg

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