The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to 4.25% from 4.50% previously. The RBA said: “Overall, the Board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate. The Board will continue to set policy as needed to foster sustainable growth and low inflation over time.” The Bank cited the risks of slowing growth in China, and sovereign credit and banking problems in Europe, as well as declining commodity prices; as posing downside growth and inflation risks.
The Bank previously held also cut the cash rate by 25 basis points at its November meeting, meanwhile the RBA last increased the interest rate by 25 basis points in November last year. Australia reported annual consumer price inflation of 3.5% in Q3 this year, compared to 3.6% in Q2, and up from 3.3% in Q1, and 2.7% in the December quarter of 2010, and just outside the Bank’s inflation target of 2-3%.
The Australian economy expanded 1.2% in the June quarter, after contracting -0.9% during the March quarter due to the impact of natural disasters; placing year on year GDP growth at 1.1% in the June quarter, and 1.2% in the March quarter.
Following the announcement the AUDUSD dropped from about 1.0238 to as low as 1.0167.
The Australian dollar (AUD) has gained about 1% against the US dollar so far this year, after reaching parity and climbing as high as 1.10 this year; the AUDUSD exchange rate last traded around 1.019The RBA next meets on the 7th of February next year, and will release its December meeting minutes on the 20th of December.
