The decision by the Reserve Bank of Australia follows the release last week of relatively weak inflation data. Economists had widely predicted a cut of only a quarter percentage point.
Australia's slowing economy has pushed the country's central bank to slash interest rates by 0.5 percentage points to 3.75%, in a sign that the eurozone crisis and the cooling in China are affecting the global economy.
Tuesday's cut was larger than most foreign exchange traders had anticipated and is expected by some analysts to be followed by several more cuts before the end of the year.
The decision by the Reserve Bank of Australia follows the release last week of relatively weak inflation data. Economists had widely predicted a cut of only a quarter percentage point. The last interest rate cut was in December.
"This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated," the Reserve Bank governor, Glenn Stevens, said in a statement.
Like Brazil and other economies that have boomed in recent years on the back of commodity exports, Australia has suffered from a high exchange rate and rampant property price boom.
The high-value Australian dollar has generated billions of dollars for mining companies during a long boom largely fuelled by China's demand for iron ore, coal and natural gas.
But the strength of the currency, which has added to the cost of exports, has undermined more price-sensitive industries such as agriculture, tourism and manufacturing, which have suffered as mining has grown.
Economists have accused Australia's government of allowing the economy to become a "one-trick pony" with an over-reliance on mining and vulnerable to a downturn in Chinese manufacturing.
Stevens said a slowdown in demand from China was partly to blame for the weaker economic outlook.
Over the past year house prices have slumped as mortgage rates have increased and consumer spending tightened.
Michael Blythe, chief economist with Australia's Commonwealth Bank, said the central bank was probably hoping to provide "a positive shock to consumer and business confidence by doing a bit more than people were expecting".
Last week, the Australian Bureau of Statistics released figures showing the annual inflation rate to March was 1.6%, down sharply from 3.1% a year earlier. The reserve bank's target inflation rate for the year is 2% to 3%.
The bank cited the inflation data and a subdued housing market as reasons behind its decision. Stevens also noted slowing growth in the world economy, singling out the more moderate pace of growth in China and continuing tough conditions in Europe.
Sales of new homes fell to their lowest level in more than a decade in March, dropping 9.4% from a month earlier, the nation's Housing Industry Association said on Monday. Housing prices in the country's capital cities are down 4.5% from the same period a year ago, the statistics bureau reported.
The housing association's chief economist, Harley Dale, had called for the bank to cut rates by half a percentage point.
"The Bank needs to send a clear signal that it is back on the case of assisting an economy that is clearly weaker than it anticipated in 2012," Dale said.
Asad Khan
CFB (Trading Team)
No comments:
Post a Comment