Australia cbank cuts rates to 3-yr low

Oct 02 2012, 18:14 IST
Comments 0
SummaryInvestors see further cuts ahead, perhaps as far as 2.75 pct

Australia's central bank cuts interest rates by a quarter point to a three-year trough of 3.25 per cent on Tuesday, saying a darker global background, falling export prices and a high currency had all dimmed the economic outlook at home.

The Australian dollar fell a third of a US cent as the market had not been fully priced for a move, with many analysts favouring November as a more likely window for a cut.

The Board judged that, on the back of international developments, the growth outlook for next year looked a little weaker, while inflation was expected to be consistent with the target, Reserve Bank of Australia (RBA) Governor Glenn Stevens wrote in a statement after the central bank's monthly policy meeting.

The Board therefore decided that it was appropriate for the stance of monetary policy to be a little more accommodative.

Investors had priced in about a 60 percent probability on an easing <0#YIB:> this week, in part due to concerns about the slowdown in China, Australia's single biggest export market.

Most economists had thought the central bank would wait for third-quarter inflation figures due later this month before pulling the trigger.

Still, with core inflation expected to remain near the floor of the RBA's long-term target band of 2 to 3 per cent, markets had assumed further cuts were inevitable.

Interbank futures are fully priced for a move to 3 per cent by Christmas. Overnight indexed swaps, which show where the market thinks the cash rate will be over time, have 2.75 per cent inked in on a 12-month horizon.

Yields on Australian 10-year bonds are under 3 per cent, so it is cheaper for the government to borrow for a decade than for banks to borrow overnight.

Australia is fortunate is still having plenty of room to cut. With rates near zero in the United States, Japan and UK, those countries have had to take ever more exotic stimulus measures by buying massive amounts of government debt.

The easing already delivered helped the resource-rich economy grow a robust 3.7 per cent in the year to June, far outpacing its developed world peers. With annual output up at A $1.47 trillion ($1.5 trillion), it should pass Spain as the world's 12th largest economy this year.

Yet global headwinds have only got greater as the cooling of China and a recession in Europe drag on world trade. The pain is being felt across Asia, leading the central bank

Single Page Format
Ads by Google

More from Business

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...