By Sarah Mishkin in Hong Kong
Australia has cut interest rates for the first time since the financial crisis as growth slows in Europe and China and confidence remains low outside the country?s key resource sector.
The bank fell back to what it described as a ?neutral stance? with a rate cut of 25 basis points, a week after data showed lower than expected inflation in the third quarter. The main cash rate is now 4.5 per cent. The bank?s last cut was in April 2009.
Brazil, Turkey and Indonesia have all cut rates in recent weeks in anticipation of a global slowdown.
?Recent information is consistent with a moderation in the pace of global growth, though fears of a major downturn have not been borne out so far,? said Glenn Stevens, the governor of the Reserve Bank of Australia.
Economists? predictions had been split before the decision as Australia?s economy is still generally stronger than most developed nations. Its wealth of commodities such as coal and iron ore have been driving investment in long-term projects and helped keep unemployment low.
On Tuesday, Mitsubishi Corporation of Japan announced it would invest A$2.1bn ($2.19bn) to expand a Queensland coal mine it operates in partnership with BHP Billiton.
But other indications, including falling inflation, suggest the economy is beginning to peak and move towards more moderate growth.
House prices have fallen for the past three consecutive quarters, although some economists take that as a positive sign that the nation might be slowing exiting a housing bubble that arose during the series of rate cuts following the collapse of Lehman Brothers.
The RBA, in its statement, highlighted continued uncertainty in Europe and ?turmoil? in the markets, which has dented confidence among both companies and households. It also cited recently falling commodity prices and slowing growth in China, a major market for Australia?s commodities.
Further cuts, wrote Ivan Colhoun, an economist with ANZ Research, will depend on whether the growth outlook globally continues to weaken and whether inflation remains low following Tuesday?s cut. He does not predict another cut until next February,
after new inflation data is released in early 2012.
?On current developments and our forecasts for inflation and GDP growth, this is a finely balanced call with the likelihood that this might be the first ever once-off rate adjustment,? he wrote in a note after the decision.
The Australian dollar was down 0.75 per cent in afternoon trading to A$0.95 per US dollar.
? The Financial Times Limited 2011