The Reserve Bank of Australia has cut its benchmark interest rate by 25 basis points to its lowest level since 2009 as it seeks to counter the slowdown in the nation’s once burgeoning mining sector.
The Bank took action after the high value of the Australian Dollar began to impact the country’s economy, a cut to interest rates will weaken the currency. The Banks governor Glenn Stevens reduced the rate by a quarter of a % to 3% making it the sixth cut in the past 14 months. The rate matches the level reached from April-October 2009 that was the lowest since 1960.The move was expected by most economists and so far has seen the currency make a gain against the US Dollar.
“The cut is an attempt to smooth the transition from resources to the broader sectors of the economy that is currency and interest-rate sensitive,” said Martin Whetton, interest-rate strategist for Australia at Nomura Holdings Inc. in Sydney. “There feels like there’s a level of frustration in the statement about the currency.”
The key cause for the rate cut, the slowdown of the mining boom has caused the bank to shift its policy in order to allow other sectors to pick up the slack and drive growth in the future. The high demand for commodities such as iron and coal has seen Australia ride out the economic crisis but with its biggest trade partner, China, seeing a slowdown in growth demand for those materials has begun to slow and the value of its exports has started to suffer.
“The urgency to actually find a replacement for mining investment has become quite acute,” said Brian Redican of Macquarie Bank.
Mr Redican said more action will be required from the Reserve Bank of Australia.
“In 2013 there will be further aggressive rate cuts, although there is nothing in this statement that suggests that the Reserve Bank is thinking along those lines.”
The Pound to Euro exchange rate is currently trading at 1.2335
The Pound to US Dollar exchange rate is currently trading at 1.6118
The Pound to Australian Dollar exchange rate is currently trading at 1.5388
The Euro to US Dollar exchange rate is currently trading at 1.3066
The Euro to Pound exchange rate is currently trading at 0.8106
Comments are closed.