The Reserve Bank cut the cash rate to a record-low of 2.75 per cent at its May board meeting. Source: AAP
THE Reserve Bank of Australia has cut the cash rate to 2.75 per cent at its May board meeting, in a effort to boost economic growth in Australia, which is still below trend.
In 2012 the central bank cut the cash rate four times, but this was the first reduction in 2013.
In a statement accompanying the decision, RBA governor Glenn Stevens said economic growth was below trend in the second half of 2012 and continued to be that way in 2013.
"Employment has continued to grow but more slowly than the labour force, so that the rate of unemployment has increased a little, though it remains relatively low," Mr Stevens said on Tuesday.
"The global economy is likely to record growth a little below trend this year, before picking up next year.
"Among the major regions, the United States continues on a path of moderate expansion and China's growth is running at a more sustainable, but still robust, pace."
Mr Stevens said the RBA board noted the inflation outlook would afford scope to ease the cash rate further.
"At today's meeting the Board decided to use some of that scope," he said.
"It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target."
Commonwealth Bank chief economist Michael Blythe said it appeared recent consumer price index (CPI) figures, which showed inflation remains benign, had prompted the RBA's decision to cut.
"It's hard to see much in the statement that suggests a change in views (on the economy) compared with last month," he said.
"It seems that confirmed low inflation has just allowed them to act on an easing bias and give the non-mining economy a further nudge along."
Mr Blythe said the RBA's statement gave no indication of whether it was considering further rate cuts.
UBS interest rate strategist Matthew Johnson said he thinks there won't be any more rates reductions for a while and this one was a line-ball decision.
"My read of the statement is they cut because inflation was low and because they could, not necessarily because they changed their demand outlook.
"I think that means they are not going to cut in the near term, they are pretty data dependant."
"I guess the decision was 50-50, the future market had it right and the economists got it wrong."
HSBC chief economist Paul Bloxham said low inflation has won the day.
"It's allowed them to cut the cash rate a bit further but it also seems as though part of their objective is to get the Aussie dollar to come down a bit," Mr Bloxham said.
However, he remains sceptical that the central bank can achieve those aims.
"They have noted in the past that the link between the Aussie dollar and interest rates is pretty loose so it's hard to know."
In its statement the RBA said inflation is consistent with the target and a little lower than expected.
It also said the exchange rate had been at a historically high level over the past 18 months, which was unusual given the decline in export prices and interest rates during that time.
If today's interest cut was passed on in full then the repayments on a $300,000 mortgage would drop by about $46 a month on average.
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