In a recent announcement the Reserve Bank of Australia commented on weakened growth both in Australia and overseas and highlighted how this has driven down the prices of the country’s key exports, coal and iron ore.
With the global economic slowdown and European crisis weighing heavily on the South Pacific nation, and the Australian Dollar heading for a three week low, the RBA continued to cut its benchmark interest rate. Under the leadership of Governor Glenn Stevens the central bank’s board slashed the overnight cash-rate target to 3.25 per cent, a drop of 0.25 per cent.
Through this action the RBA hopes to boost demand beyond the resource boom – which is now predicted to peak at a lower level than hoped.
In Sydney the RBA Governor asserted: ‘The peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.’ Stevens went on to state that the decision to add to May and June’s previous rates reductions was made in light of a weakening labour market, underwhelming US economic expansion, slowing growth in China and restrained inflation. Stevens was quoted as saying: ‘The labour market has generally softened somewhat in recent months […] 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.’
In last month’s RBA meeting rates were kept unchanged but since the beginning of September data has shown that growth dropped from 1.4 per cent in the first quarter to 0.6 per cent in the second. Statistics also showed a decline in business confidence and a wider-than-predicted trade deficit in July.
Jarrod Kerr, director of Australia rates strategy at Credit Suisse, commented; ‘The RBA has rejoined other central banks around the world in what is becoming an increasingly coordinated policy response to anaemic growth. We continue to forecast further easing in this cycle.’
Following the decision the Down-under Dollar dropped, hovering close to its lowest level since September 7th.
The Pound to Euro exchange rate is currently trading at 1.2516
The Pound to US Dollar exchange rate is currently trading at 1.6143
The Pound to Australian Dollar exchange rate is currently trading at 1.5663
The Euro to US Dollar exchange rate is currently trading at 1.2896
The Euro to Pound exchange rate is currently trading at 0.7988
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