The Reserve Bank of Australia has lowered its interest rate from 3.25% to 3% to help bolster the economy. This is the lowest interest rate level since 2009
The Reserve Bank of Australia Governor Glenn Stevens said that the rate-setting board of the bank thought that it was appropriate to lower rates to “help to foster sustainable growth in demand and inflation outcomes consistent with the [RBA’s] target over time.”
He also claimed that “available information suggests that the near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued.” Stevens also noted:"While the full effects of earlier measures are yet to be observed, the Board judged at today's meeting that a further easing in the stance of monetary policy was appropriate now. Looking ahead, recent data confirm that the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen."
Economic analysts worry that sectors other than mining are being hurt by a strong Australian dollar. The strong dollar makes exports more expensive and less competitive. Demand may decrease for Australian resources in the mining sector. Su-Lin Ong of RBC Capital Markets said:"We worry that the transition to housing/consumer-driven growth is unlikely to be smooth or enough to fill what is likely to be an increasingly large hole in growth as [mining capital expenditure] slows.”
After the RBA's decision to reduce interest rates, the Australian dollar rose against the U.S. dollar climbing to $1.0442 from $1.0422 just a minute before the decision. An investment strategist said that the market thought that there was a chance of a 50 basis points cut rather than the 25 that actually transpired. Shane Oliver said:“I think that what happened is that markets were starting to think that there was a chance of a 50-basis-point cut. We only saw 25 basis points, so the dollar rebounded and shares softened.”