Australia's central bank lowered interest rates to 1.75%, following “unexpectedly low” inflation data.
The board of the Reserve Bank of Australia said Tuesday that effective Wednesday the cash rate would be lowered by 25 basis points, following information showing that inflationary pressures are lower than expected.
Glenn Stevens, governor of the bank, in a statement published on the bank's website highlighted that while the global economy continues to grow, forecasts have been revised down further recently. Emerging markets continue to be difficult in terms of growth, with China's growth rate moderated further in the first part of this year. He added that recent actions by policymakers in the country, however, are supporting the near-term outlook.
Australia's terms of trade remain lower than recent years, the statement said. Commodity prices have “firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years,” it said. And while sentiment in markets has improved, uncertainty over the global economic outlook and policy settings among major countries has continued. “Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative,” the statement said.
Mr. Stevens said Australia's economy is continuing to rebalance following the mining investment boom, with GDP growth picking up in 2015, and improvements in the labor market. “Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labor market indicators have been more mixed of late,” he said.
Inflation has been low for some time, while recent data were “unexpectedly low,” Mr. Stevens said. He said quarterly data show some temporary factors, but coupled with ongoing subdued growth in labor costs and low-cost pressures elsewhere in the world, these elements “point to a lower outlook for inflation than previously forecast.”
The board of the bank “judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy” at its most recent meeting, the statement said.
