Australia's central bank cuts key interest rate to record low

  • Published
BHP Billiton Western Australia iron ore mine
Image caption,
There have been fears that Australia's resource boom may be hurt by slowing global demand

Australia's central bank has cut its benchmark interest rate to a record low, in an attempt to counter slowing growth in the country's mining sector.

The Reserve Bank of Australia (RBA) cut its key rate to 2.75% from 3%.

The bank said it expected investment in the resources sector, one of its biggest drivers of growth in recent times, to peak this year.

It added that a rate cut would provide a boost to other areas of the economy and help sustain long-term growth.

"There has been a strengthening in consumption and a modest firming in dwelling investment, and prospects are for some increase in business investment outside the resources sector over the next year," the central bank said in a statement.

"These developments, some of which have been assisted by the reductions in interest rates that began 18 months ago, will all be helpful in sustaining growth."

'More confidence'

Australia's economic growth in recent years has been fuelled by the growing demand for its commodities, such as iron ore.

That resulted in a resources boom in Australia and helped it sustain growth through the global financial crisis.

However, as demand from key markets such as China has eased, there have been concerns that Australia's mining sector may see its growth slow.

At the same time, many analysts have pointed out that other areas of the country's economy have not done so well, resulting in what many have termed a two-speed economy.

To make matters worse, the Australian currency has strengthened - making its exports more expensive, as well as affecting sectors such as manufacturing and tourism.

It rose nearly 9% against the US dollar between June 2012 and April 2013.

Amid all these concerns, there have been calls for policymakers to take steps to help boost growth, especially in the non-mining sectors, to ensure that the economy continues to grow.

Analysts said the cut in interest rates, which will help bring down borrowing costs for businesses and consumers, will help to provide some relief to those sectors and allay fears of an economic slowdown.

"Commodity prices have fallen and inflation has come in less than expected, and of course the Australian dollar through all of that has remained surprisingly strong," said Shane Oliver, chief economist with AMP Capital Investors.

"I think it was appropriate for the Reserve to provide a bit more confidence [so that] when the mining investment boom starts to wane the rest of the economy will fill the gap."

The Australian dollar weakened slightly, dipping 0.7% against the US dollar, after the rate cut was announced.

It was trading close to A$0.9808 against the US dollar in Asian trade.

Related Internet Links

The BBC is not responsible for the content of external sites.