The Reserve Bank of Australia or RBA has made a historic decision from cutting interest rates to even lower than 1.75 percent to 1.5 percent overnight.
The ruling from the central bank of Australia came following the weak inflation figures affecting the national economy. It is expected that price growth will be stimulated with this step taken by RBA. A similar sudden cash rate reduction was seen in May when the bank cut its interest rates to 175 percent after weaker consumer price data obtained in the quarter of March.
The last decision of cutting cash rates in May influenced the inflation figures in June, as depicted by the Australian Bureau of Statistics last Wednesday. Similarly, this time, the bank hopes to see an improvement in the economic growth as well as the labor market. According to reports, the economy of the nation has been less influenced by commodities as observed after the unprecedented boom in the mining sector.
“The Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting,” RBA Governor Glenn Stevens said.
Bloomberg surveyed around 20 to 25 people based on expectations of a rate cut on Tuesday, following which it found that the odds were similar even in this case. That meant the rate cut on Tuesday will see the same weakening of the inflation numbers.
AMP Capital Investors Chief Economist Shane Oliver told Reuters that if RBA had not taken an active decision, the currency might have moved towards devaluation in some other dramatic direction. He said that seeing the inflation figures and the risk associated with the same, the bank had to act. Oliver added that the Australian dollar would have reached US$76-77 by now if the bank would not have taken the sudden decision of cutting interest rates.
What seems to be troubling, according to the ABC, is that the major banks of the nation are not in a mood to pass the RBA rate cut.