Australian Economy

Reserve Bank of Australia cuts interest rate to global recession low

PUBLISHED : Wednesday, 05 December, 2012, 12:00am
UPDATED : Wednesday, 05 December, 2012, 3:12am


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The Reserve Bank of Australia has cut its benchmark interest rate to the half-century low set during the 2009 global recession.

The move comes as hiring falters and an elevated currency hurts industries, such as manufacturing and tourism.

Governor Glenn Stevens and his board reduced the overnight cash-rate target by a quarter percentage point to 3 per cent, the central bank said yesterday.

This is the sixth cut in the past 14 months and the rate matches the level reached from April to October 2009, which was the lowest since 1960.

Stevens said the local dollar remains "higher than might have been expected" given lower export prices and a weaker global outlook.

His decision to ease the highest policy rate among major developed economies reflects Australia's contained wage pressure, lower projected mining spending and an unemployment rate at a two-and-a-half-year high.

"The cut is an attempt to smooth the transition from resources to the broader sectors of the economy that are currency- and interest-rate sensitive," said Martin Whetton, interest-rate strategist for Australia at Nomura Holdings in Sydney.

The yield on three-year government debt advanced to 2.62 per cent, up four basis points from yesterday. Australian financial stocks declined, with the S&P/ASX 200 Finance Index falling 0.5 per cent.

"The near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued," Stevens said.

The local dollar's 62 per cent climb in the past four years has hurt exporters, forcing them and other companies to adapt.