‘‘The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects can be expected over time"
-RBA Governor Glenn Stevens
In signs of weakening economic growth the Reserve Bank of Australia led by the Governor Glenn Stevens damped expectations of more series of rate-cut after reducing its benchmark interest rate to a record low in attempt to boost the economy. On Tuesday during its monthly meeting the RBA reduced the overnight cash-rate target by 0.25% to 2.5% and mentioned that the current inflation outlook could provide some scope to ease the monetary policy further. The move was widely expected by many economists, as the economy is tipped to be in transition phase, trying to shift its focus to non-mining sectors, such as constructions or manufacturing, to avoid a collapse in production. This has been the seventh reduction of borrowing costs since late 2011, while the most recent one was made in May earlier this year.
Stevens also pointed out the domestic economy is likely to continue developing below trend in the near term, hence, additional stimulus was needed. Even though the Aussie depreciated around 15% since early April, Australian policymakers still consider it as an overvalued currency, and said they welcome a further depreciation of the exchange rate in order to help foster a rebalancing of economic growth. At the same time, Australian Prime Minister Kevin Rudd is likely to benefit from the reduction in a country, where almost 90% of mortgages have variable-rate loans.
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