The Reserve Bank of Australia (RBA) has emphasised its continued caution about the outlook for the Australian economy after cutting the official interest cash interest rate by 25 basis points to 3.60%.
In a unanimous decision by its Monetary Policy Board the central bank delivered the first rate cut since May and one that was widely expected by economists and the financial markets.
“With underlying inflation continuing to decline back towards the midpoint of the 2–3 per cent range and labour market conditions easing slightly, as expected, the Board judged that a further easing of monetary policy was appropriate,” the Board said in a statement.
“This takes the decline in the cash rate since the beginning of the year to 75 basis points.
“The Board nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and potential supply.”
This followed the surprise decision in July to leave rates unchanged when the market had been factoring in a 25 basis point reduction, but it was not unanimous with the RBA three of the nine directors voting against it.
In its latest statement, the RBA said it noted that monetary policy was well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.
“The Board will be attentive to the data and the evolving assessment of risks to guide its decisions,” it said.
“In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
“The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.”
The announcement came at the end of the traditional two-day meeting of the Board.
The Australian central bank had last changed rates when it lowered the cash rate by 25 basis points on 20 May, signalling it was taking a careful approach to monetary policy.
The cash rate, the interest rate that banks pay to borrow funds from other banks in the money market overnight, influences all other interest rates, including mortgage and deposit rates.
