Australia’s central bank, the Reserve Bank of Australia (RBA), has cut its official cash rate to a historic low of 1.5% in a bid to boost economic growth. It is the 12th consecutive cut sanctioned by the RBA since 2011, when the rate stood at 4.75%.
However, the country’s ‘Big Four’ banks- Commonwealth Bank, ANZ, National Australia Bank (NAB) and Westpac are passing on only part of the reduction to customers, blaming higher costs and tougher regulation for their failure to pass on the whole amount.
RBA governor Glenn Stevens, who is approaching the end of his tenure and is due to be succeeded on September 18 by his deputy, Philip Lowe, said that recent data suggested Australia’s economic growth was continuing at a moderate pace, despite a big decline in business investment.
“Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend,” he commented. “Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term.
“The [RBA] board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”
The governor also noted that Australian inflation stands at a 17-year low of 1%, against the bank’s target rate of 2-3% and was likely to remain low for some time, while low interest rates were making banks more willing to lend money, which was helping growth.
Australia is attempting to diversify its economy following the end of its decade-long mining boom, which helped the country avoid recession during the 2008 global financial crisis thanks to strong demand for its commodities from China. However, prices for iron ore and coal have weakened as China’s economic growth rate has cooled.
At the same time, economic growth is running at just over 3% and the Australian dollar (AUD) has recently been strong, helped by the Federal Reserve’s decision not to further increase US interest rates since last December’s rise. It has also been assisted by the move into negative rates and bond-buying programmes from economies such as Europe and Japan.
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