The Reserve Bank of Australia has cut the official interest rate by 25 basis points to 2.5 per cent – a record low.
In a statement this afternoon, RBA Governor Glenn Stevens said the national economy is growing below trend as it adjusts to lower levels of mining investment.
“In Australia, the economy has been growing a bit below trend over the past year,” Stevens said.
“This is expected to continue in the near term as the economy adjusts to lower levels of mining investment.
“The unemployment rate has edged higher.
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“Recent data confirm that inflation has been consistent with the medium-term target.”
Stevens said there were some signs of positive movement in the housing sector.
“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. The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households,” he said.
“The Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.”
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National Australia Bank has already passed on the central bank’s quarter of a percentage point rate cut in full to its borrowers.
NAB will cut its standards variable home loan rate by a quarter of a percentage point to 5.88 per cent from August 12.
As the political parties readied their responses, the man who made much of low interest rates in his 2004 election campaign – former Prime Minister John Howard said times had changed. The Labor government is deluding itself if it believes lower interest rates are a sign they have the economy well in-hand, he said today.
In 2004, when Howard was contesting an election as prime minister, he said interest rates would always be lower under a Coalition government.
“The context in 2004 was who was better to deliver lower interest rates in a booming economy,” Howard told the Australia-Israel Chamber of Commerce.
Then, the Reserve Bank of Australia’s cash rate was 5.25 per cent compared with 2.5 per cent now.
Howard said rates were lower now because the economy was slowing.
“For anybody to run around between now and election day and say that a cut in interest rates means that the government has got the economy well in hand, they’re deluding themselves,” Howard said.
“Look at some of the nations of Europe. They have got virtually zero interest rates and their economies are not moving.”
– with AAP
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