Reserve Bank of Australia’s Cash Rate Cut Again — This Time by 25 Basis Points

June 5, 2012

At today’s meeting, the Board judged that, with modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy.

So concluded a statement from Reserve Bank of Australia Governor Stevens that defends today’s 25-bp cut of the Official Cash Rate to 3.50%.  This was the fourth reduction, following 25-bp cuts last November and December and a 50-bp cut on May 1st of this year.  The statement observes

  • Further weakening in Europe and some further moderation in growth in China.
  • A deterioration of world financial market sentiment.
  • In Australia, “both households and businesses continue to exhibit a degree of precautionary behavior, which may continue in the near term.”
  • Aussie CPI inflation is expected to stay within the 2-3% target range over the forecast horizon and to hover near the lower boundary in the near term.
  • Housing remains subdued, and prices “have recently declined again.”
  • Domestic “credit growth remains subdued overall.”
  • Australia’s terms of trade peaked “about six months ago” but remains “historically high.”

Today’s rate cut was widely anticipated.  A minority of analysts even thought officials would do another 50-basis point move.  The statement leaves open the possibility that the easing cycle isn’t yet over.  Rates bottomed at 3.0% during the global Great Recession even though Australia managed to avoid a contraction of GDP then.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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