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RBA cuts rates but more optimistic about economy
As expected, the Reserve Bank of Australia cut its cash rate by 25 basis points to a record low of 2.0% today. The Australian dollar in a knee-jerk reaction spiked down a quarter of a cent before quickly rebounded as the RBA comments were viewed as neutral and appeared to remove the easing bias. Basically opinion was divided on how effective the latest RBA cut was going to be in tamping down the currency and spurring the broader economy.
This is the second time the RBA cuts interest rates this year on Tuesday, seeking to protect the Australian economy against sliding mining investment while trying to deal with the harmful effects of a strong Australian dollar.
The RBA statement announcing the move noted some improvement in the economy while omitting a mention that further action could prove necessary.
“The Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand,” commented RBA Governor Glenn Stevens.
“The available information suggests improved trends in household demand over the past six months and stronger growth in employment,” Stevens added.
After the data, the Australian dollar first slid half a US cent only to reverse the drop to peak at $0.7910.
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