Australia cuts interest rates to historic low

Source: Xinhua | 2019-06-05

Australia’s central bank lowered the cost of borrowing for the first time in three years yesterday, hoping to extend a record 28-year run without a recession in the face of stiffening economic headwinds.

The Reserve Bank of Australia cut rates by 25 basis points to a historic low of 1.25 percent as the pace of growth slowed to levels not seen since the global financial crisis.

Australia dodged much of the global economic tumult of the past two decades.

However, rising unemployment, low wages, a housing slump and below-target inflation are now stoking fears about the health of the economy Down Under.

“The board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” Australia’s Governor Philip Lowe said.

The rate cut had been expected and analysts believe that more measures to juice the economy could be on the way.

Lowe said in a statement that the bank would “continue to monitor developments in the labor market closely and adjust monetary policy to support sustainable growth in the economy.”

The economy grew at 0.3 and 0.2 percent in the last two quarters while figures for the first quarter of 2019 will be released today.

Slow global recovery

Any contraction would trigger alarm with negative growth for two consecutive quarters widely considered a recession.

Many are predicting the cash rate will fall below 1 percent this year and the central bank could even look at buying up securities.

In the 10 years since the global meltdown, the Reserve Bank of Australia has — apart from a brief burst of optimism in 2010 — steadily cut rates from a peak of 7.25 percent.

Any hope of returning rates to more “normal” pre-crisis levels have been quashed by the slow global recovery, trade disputes and domestic challenges.

Earlier, there was news of faltering retail sales and the country’s main telecoms firm cutting 10,000 contractors.

A downturn in the hypercharged housing market, falling consumption and stalled wages have already pushed Australia into a per capita recession, with the output per person falling for two consecutive quarters.