Australia central bank cuts rates to record-matching lows

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The Reserve Bank of Australia (RBA) cut its main cash rate to 3.0% following its monthly policy meeting.  (Reuters) The Reserve Bank of Australia (RBA) cut its main cash rate to 3.0% following its monthly policy meeting. (Reuters)
SummaryThe Reserve Bank of Australia (RBA) cut its main cash rate to 3.0% following its monthly policy meeting.

Australia's central bank cut interest rates a quarter point to a record-matching low on Tuesday, stepping up efforts to safeguard the rich world's most resilient economy from the risk of recession as a mining boom peaks.

The Reserve Bank of Australia (RBA) cut its main cash rate to 3.0 percent following its monthly policy meeting, bringing the easing since May to 125 basis points and matching the trough hit during the darkest days of the global financial crisis.

"While the full effects of earlier measures are yet to be observed, the Board judged at today's meeting that a further easing in the stance of monetary policy was appropriate now," said the central bank's governor, Glenn Stevens.

"Looking ahead, recent data confirm that the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen."

Financial markets were almost fully priced for an easing given signs the seven- year old bonanza in mining investment is finally likely to crest next year, leaving a hole in growth that needs to be plugged by other sectors of the economy.

The move was so well discounted the local dollar actually firmed a quarter of a cent to $1.0445 on the news.

Yet, investors are still wagering official rates will have to go lower yet to truly stimulate demand among cautious consumers and a lacklustre housing market.

Interbank futures suggest the central bank rate could approach 2.5 percent by the middle of next year, while some economists think a floor of 2 percent is not impossible.

"I think the RBA realises it needs to do more to boost the non-mining parts of the economy," said Shane Oliver, chief economist at AMP Capital Investors in Sydney.

"What it doesn't do is to offer much guidance as to the future, but my feeling is they still have to cut further. They will probably do 25 (bps cut) in February and then 25 in April."

One reason for that is the stubborn strength of the Australian dollar.

In the global financial crisis, the currency tumbled by 30 U.S. cents, giving a big boost to exports. This time foreign demand for Australia's triple-A rated debt has helped it stay solidly above parity.

China has also played a part by accepting more moderate growth at home and thus restraining demand for Australia's commodity exports, leading top miners such

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