(menafn – ecpulse)
The Reserve Bank of Australia unexpectedly cut the interest rate by 50 basis points for first time during the year as inflation rates curbed, and the Australian government wants to give momentum to support the recovery in the nation amid the European crisis impact.
The Reserve bank of Australia decided today to decline the interest rate by half a percentage point during May from 4.25 to 3.75%., lower than expected.
This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated.
We can see that the economic condition in Australia has moved in narrow range, where output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years. Output growth was affected in part by temporary factors, but also by the persistently high exchange rate, so the Bank sees that his decision is very suitable at the time.
On the other hand, Growth in China has moderated, as was intended, and is likely to remain at a more measured and sustainable pace in the future, where china has released today its manufacturing PMI for April that came better than the previous reading but lower than expected, but this reading is a great amid the current position for global recovery.
Moreover, inflation has declined again, and was a little over 2 per cent over the latest four quarters. CPI inflation has also declined, from about 3.5 percent to a little over 1.5 percent at the latest reading, as the weather-driven rises in food prices in the first half of last year.
Governor Glenn Stevens noted this month that RBA may lower the borrowing costs during the current period if the nation’s economy witnessed more moderate inflation’s outlook, as well as to stimulate growth in the non-mining industries.
The Australian economy is being driven by developing nations’ demand like China and India for iron ore, coal and natural gas, where inflation rates were targeted to be settled between 2% and 3% by the RBA.