The Strategist

Australian Central Bank lowers rate to record low

10/01/2019 - 10:20

The Central Bank of Australia cut its key interest rate for the third time this year and pointed to the possibility of further reductions.

Newtown grafitti
Newtown grafitti
The Reserve Bank of Australia cut interest rates by 25 basis points to a record low of 0.75% per annum. The decision of the regulator coincided with expectations of most economists.

The central bank has already cut rates in June and July.

"The Council will continue to monitor developments, including on the labor market, and is ready, if necessary, to further soften monetary policy," said Head of the Reserve Bank of Australia, Philip Lowe.

The Australian economy has been avoiding recession since the early 1990s. However, economic growth has slowed sharply since the middle of last year, as households face record debt and weak income growth, which limits spending.

The situation was aggravated by the trade war between Washington and Beijing, as Australia is the most dependent on China.

In the second quarter, Australia's economic growth slowed to a ten-year low amid weak consumer spending and a sharp decline in housing construction. GDP increased by 1.4% compared to the same period last year.

Lowe sees a “smooth reversal” of the economy after a slowdown in the second quarter. Nevertheless, the regulator is ready to lower interest rates again, if necessary.

Record-low interest rates supported house prices, helping to put an end to the two-year continuous decline that affected household welfare and consumption. Housing prices in Australia rose by 0.9% in September, at the fastest pace since March 2017. Prices in Sydney and Melbourne jumped by 1.7%, but building permits for new houses fell to the lowest level since 2013.