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Australia lowers rate to 4.5% in a bid to boost growth | Australia lowers rate to 4.5% in a bid to boost growth |
(40 minutes later) | |
The Reserve Bank of Australia (RBA) has cut interest rates in a bid to boost growth amid fears of a slowdown in the global economy. | The Reserve Bank of Australia (RBA) has cut interest rates in a bid to boost growth amid fears of a slowdown in the global economy. |
The central bank lowered its key rate to 4.5% from 4.75%, the first cut since April 2009. | The central bank lowered its key rate to 4.5% from 4.75%, the first cut since April 2009. |
The move comes amid fears that the debt crisis in Europe and slowdown in the US may hurt global economic growth. | The move comes amid fears that the debt crisis in Europe and slowdown in the US may hurt global economic growth. |
RBA said it was concerned about the impact of global uncertainty on its economy, | RBA said it was concerned about the impact of global uncertainty on its economy, |
"Information about the Australian economy suggests moderate growth overall," the bank said in a statement. | "Information about the Australian economy suggests moderate growth overall," the bank said in a statement. |
"The terms of trade have now peaked and will decline somewhat in the near term," it added. | "The terms of trade have now peaked and will decline somewhat in the near term," it added. |
Domestic Factors | Domestic Factors |
Apart from the global pressures, the central bank has also had to deal with a slowing domestic demand. | Apart from the global pressures, the central bank has also had to deal with a slowing domestic demand. |
While Australia's resources and mining sector have been booming, other areas of the economy such as retail sales have witnessed a slowdown in recent times. | While Australia's resources and mining sector have been booming, other areas of the economy such as retail sales have witnessed a slowdown in recent times. |
"In other sectors, cautious behaviour by households and the high exchange rate have had a noticeable dampening effect." the bank said. | "In other sectors, cautious behaviour by households and the high exchange rate have had a noticeable dampening effect." the bank said. |
According to the latest data by the Housing Industry Association, new home sales in Australia fell to their lowest level in 11 years in September. | According to the latest data by the Housing Industry Association, new home sales in Australia fell to their lowest level in 11 years in September. |
Analysts said that as fears of a global slowdown gather pace, the central bank is worried that demand may fall further. | Analysts said that as fears of a global slowdown gather pace, the central bank is worried that demand may fall further. |
"The RBA's decision to cut rates by 0.25% is an admission that domestic demand is feeling the pressure," said Peter Escho of City Index. | "The RBA's decision to cut rates by 0.25% is an admission that domestic demand is feeling the pressure," said Peter Escho of City Index. |
"Clearly, the RBA is using its toolbox to cushion the impact," he added. | "Clearly, the RBA is using its toolbox to cushion the impact," he added. |
Moderating inflation | |
While falling consumer demand has been a concern for the central bank, it has also helped to slow consumer price growth in the country. | While falling consumer demand has been a concern for the central bank, it has also helped to slow consumer price growth in the country. |
As Australia witnessed an economic growth powered by a boom in its resources sector, the RBA repeatedly maintained that keeping inflation in check was among its top priorities. | As Australia witnessed an economic growth powered by a boom in its resources sector, the RBA repeatedly maintained that keeping inflation in check was among its top priorities. |
"The subdued demand conditions and the high exchange rate have contained inflation more recently," the bank said. | "The subdued demand conditions and the high exchange rate have contained inflation more recently," the bank said. |
According to the Australian Bureau of Statistics the consumer prices rose 0.6% in the July to September quarter, compared with a rise of 0.9% in the previous three months. | According to the Australian Bureau of Statistics the consumer prices rose 0.6% in the July to September quarter, compared with a rise of 0.9% in the previous three months. |
The bank added that it expected inflation to stay within its target range of 2% - 3% in 2012 and 2013, as pressures on consumer prices ease, and labour costs outside the resources sector moderate. | The bank added that it expected inflation to stay within its target range of 2% - 3% in 2012 and 2013, as pressures on consumer prices ease, and labour costs outside the resources sector moderate. |
Analysts said that a slowdown in consumer price growth had made it easy for the bank to cut the cost of borrowing. | Analysts said that a slowdown in consumer price growth had made it easy for the bank to cut the cost of borrowing. |