Australia’s central bank caught markets off-guard today as it slashed interest rates to a record low amid worries over a waning mining boom and a strong dollar.
The nation’s natural resources wealth helped it avoid the worst of the financial crisis as Chinese demand for metals kept the economy ticking over, but commodity prices have fallen as China’s economy slows. The Aussie dollar has also risen 70% to reach parity with the US dollar over the past four years. Australia’s unemployment rate is rising and growth is expected to be below trend this year, Reserve Bank of Australia governor Glenn Stevens said.
The quarter-point cut to 2.75% comes after the European Central Bank also dropped interest rates to an all-time low of 0.5% last week. CMC Markets analyst Michael Hewson said: “The cut needs to be set in the context of looser monetary policy elsewhere… with the RBA cognisant of the risks of a higher currency having negative effects on the Australian economy which is showing signs of a slowdown in economic activity.”
