Australia cuts interest rate to record low in bid to stimulate economy

Reserve Bank of Australia makes move in effort to revitalise sluggish growth as inflation well below target weighs on economy.

Pedestrians walk past the Reserve Bank of Australia (RBA) headquarters building in Sydney. Paul Miller / EPA

Australia’s central bank cut its benchmark interest rate to a record-low 1.5 per cent on Tuesday, in a bid to jolt the nation’s sluggish economy amid low inflation rates.

The Reserve Bank of Australia cut the cash rate by a quarter percentage point from its previous low of 1.75 per cent. The board last cut rates in May.

The RBA governor Glenn Stevens cited the nation’s low inflation rate as a driver behind the cut. Annual inflation is just 1 percent, far below the bank’s target of 2 to 3 per cent.

“Recent data confirm that inflation remains quite low,” Mr Stevens. “Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.”

Mr Stevens said overall growth in Australia was continuing at a moderate pace despite a “very large decline” in business investment.

Australia has struggled to diversify its economy after the end of its decade-long mining boom, which helped the nation avoid a recession during the global financial crisis thanks to strong demand from resource-hungry China. But as China’s economy weakened and demand cooled, prices for commodities such as iron ore and coal dropped.

Mr Stevens noted that commodity prices are above recent lows, but cited “very substantial declines” over the past couple of years.

“Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies,” he said. “Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China’s growth appears to be moderating.”

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