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Australia Cuts Cash Rate
World Economy

Australia Cuts Cash Rate

Australia’s central bank cut its benchmark interest rate to a record-low 1.5% on Tuesday, in a bid to jolt the nation’s sluggish economy amid low inflation rates.

The Reserve Bank of Australia cut the cash rate by a quarter percentage point from its previous low of 1.75%. The board last cut rates in May. Economists had largely predicted Tuesday’s cut, AP reported.

RBA Governor Glenn Stevens cited the nation’s low inflation rate as a driver behind the cut. Annual inflation is just 1%, far below the bank’s target of 2 to 3%.

“Recent data confirm that inflation remains quite low,” Stevens said in a statement. “Given very subdued growth in labor costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.”

He added that Australia’s central bank cut interest rates to a fresh record low as it moves to counter disinflation and support a labor market hampered by high levels of part-time work and underemployment.

Stevens said overall growth in Australia was continuing at a moderate pace despite a “very large decline” in business investment.

Australia has struggled to diversify its economy after the end of its decade-long mining boom, which helped the nation avoid a recession during the global financial crisis thanks to strong demand from resource-hungry China. But as China’s economy weakened and demand cooled, prices for commodities such as iron ore and coal dropped.

Stevens noted that commodity prices are above recent lows, but cited “very substantial declines” over the past couple of years.

 Trade Deficit

Australia’s economy has shown signs of losing momentum, with unexpectedly weak international trade and building data being released, ABC reported.

New figures from the Bureau of Statistics show the trade deficit blew out to a seasonally adjusted $3.2 billion in June, from the May figure which had been revised up to $2.4 billion from $2.2 billion.

It is the seventh largest deficit recorded and the largest since the $3.85 billion figure in January.

The consensus forecast had been for a narrowing of the deficit as new LNG shipments and higher iron ore prices were expected to kick in.

Total exports in June fell 0.8%, while imports rose 2%.

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