Australia's central bank says falling commodity prices and weakening demand in the mining sector are behind its decision to cut the nation's benchmark interest rate to a new record low. Economists had expected the move.
The Reserve Bank of Australia cut the nation's official cash rate by one-quarter of a percent on Tuesday, to a new record low of 2.0 percent. It's the second drop in three months, and before the last cut in February from 2.5 to 2.25 percent, interest rates had been on hold since August 2013.
The central bank's governor, Glenn Stevens, indicated the effects of a slowdown in Australia's mining sector were still being seen.
"Looking ahead, the key drag on private demand is likely to be weakness in business capital expenditure in both the mining and non-mining sectors over the coming year. Public spending is also scheduled to be subdued. The economy is therefore likely to be operating with a degree of spare capacity for some time yet," #link:http://www.rba.gov.au/media-releases/2015/mr-15-08.html:Stevens said in a statement#.
"Inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate," he added.
Stevens suggested the stronger Australian dollar, sitting today at US $0.79 after climbing over US $0.80 cents last week, was also causing some problems.
"The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices."
The central bank's move was largely expected, although some economists had anticipated it would wait until after the government released its latest budget next week.
If passed on by banks in full, the cut would save a borrower around AUD47 ($37; 33 euros) a month on a AUD300,000 mortgage ($237,150; 212,970 euros).
jr/kms (AP, AFP)