RBA Cuts Interest Rate as Aussie Remains High

By TraderVox.com

Tradervox.com (Dublin) – The Reserve Bank of Australia has reduced its benchmark interest rate to the lowest in half a century, as global recession threatens hiring in the country. The interest rate cut has also come at a time when the strong Australian dollar is hurting the country’s industries especially in tourism and manufacturing. The Governor and the RBA board reduced the overnight lending rate to 3 percent from 3.25 percent, according to a statement released yesterday in Sydney. This is the sixth cut in fourteen months and it matches the April-October 2009 low which had last been observed in 1960.

According to the statement released by Stevens, the Aussie remains stronger than it was previously expected which has resulted to lower export prices and the gloomy global economic outlook. Economists have noted that the rate decision reflects the increased wage pressure, high unemployment rate and the lower projected mining spending. According to Martin Whetton, who is a Sydney-based interest-rate strategist for Nomura Holdings Inc, the interest rate cut is a measure taken to smoothen the transition from resources based sectors of the economy to broader sectors that are sensitive to currency and interest rate such as manufacturing and tourism. Whetton also noted that the statement expressed some level of frustration about the currency.

The Australian currency strengthened against the dollar after the decision reaching a high of $1.0437 at the close of trading in Sydney from the $1.0426 it traded prior to the announcement. Stevens statement stated that the near-term outlook for non-residential building investment remains relatively subdued. The local dollar has gained by 62 percent in the last four years, which has hurt exporters and other companies forcing them to adapt. Most construction companies have cut their work force, leading to a 70,200 drop in construction jobs in the last twelve months through August. This has resulted to an increase in unemployment rate to 5.4 percent. However the mining industry has improved, adding 44,600 jobs over the same period.

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