By Central Bank News
The central bank of Australia cut its cash rate by 25 basis points to 3.25 percent, a move that was expected by some economists, saying the outlook for growth had weakened while inflation was expected to be in line with the bank’s target.
“The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside,” the Reserve Bank of Australia (RBA) said in a statement, quoting its governor Glenn Stevens.
The bank said growth in the United States remains modest, Europe is contracting while China’s economy has also slowed and “uncertainty about near-term prospects is greater than it was some months ago.”
Economic growth in Australia remains close to trend, the RBA said, helped by very large increases in capital spending in the mining and resources sector which has boosted Australia’s exports to China.
But this investment is likely to peak next year, the RBA cautioned, and investments may be at a lower level than earlier expected.
The bank also said consumption growth was firm in the first half of the year but some of that strength was temporary and the labor market has softened in recent months.
This is the third rate cut by the RBA so far this year, following cuts in May and June for a total reduction of 100 basis points so far.
The Australian economy expanded by 0.6 percent in the second quarter for a 3.7 percent annual rate, down from 4.3 percent in the first quarter. Consumer prices rose 1.20 percent in the second quarter , down from 1.6 percent.
The RBA said inflation has remained low and the introduction of the carbon price is still affecting consumer prices and this will continue over the next couple of quarters. But moderate labor market conditions should contain pressure on on costs in non-resource sectors and improved productivity should also help keep inflation low.
“The Bank’s assessment remains, at this point, that inflation will be consistent with the target over the next one to two years,” said the RBA, which targets inflation of 1-3 percent.
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