Australia’s central bank cuts interest rate to 2pc

06/05/2015 00:55 AST

Australia’s central bank cut its benchmark interest rate to a record low of 2 per cent on Tuesday to try to reinvigorate the struggling economy as a long China-fuelled mining boom fizzles out.

Reserve Bank of Australia governor Glenn Stevens said the board considered that “the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand”.

The cut was forecast by most economists and Treasurer Joe Hockey insisted: “There are many green shoots… in the Australian economy.

Annual core inflation was 0.6 per cent in the three months to March to take the year-on-year rate to 2.35 per cent, which is within the RBA’s two to three per cent inflation target band and gave the central bank room to ease rates.

The Australian economy has endured a bumpy ride as it exits from an unprecedented mining investment boom that has helped the nation avoid a recession for more than two decades.

But non-resources sectors have struggled to fill the gap left by mining, with the unemployment rate remaining high over the past year.

The rate slipped to 6.1 per cent in March, but had been gradually rising in recent months. It peaked at 6.3 per cent in January — a more than 11-year high.

The RBA decision comes a week before the federal budget, which is expected to point to shrinking government revenue amid tumbling commodity prices.

The statement did not include an explicit easing bias, which could have suggested further rate cuts. Analysts said this prompted a rise in the Australian dollar and a fall in the stock market, which started the trading day strongly.

AFP