The Reserve Bank of Australia (RBA) made the announcement following its monthly policy meeting this morning that it cut the key cash rate by 50 basis points to 3.75 percent. The Australian dollar tumbled against most counterparts as this half percentage point cut was more than expected by the markets, which had been expecting a quarter-point cut.
The Australian dollar dropped against the greenback immediately following the announcement, to $1.0330 from $1.0413. Early in the European session, AUDUSD fell further to 1.0310.
In a statement accompanying the policy decision, Reserve Bank of Australia Governor Glenn Stevens made the following comments:
“In considering the appropriate size of adjustment to the cash rate at today’s meeting, the board judged it desirable that financial conditions now be easier than those which had prevailed in December.”
He added that inflation would likely be lower than expected for the next two years, leaving the door ajar for further easing if needed.
Growth in the Australian economy has been disappointing, so the lower rates should lead to a decent reduction in borrowing costs, with the aim of helping with economic recovery.
Rates in Australia are now the lowest since December 2009, but still far above those in the United States, Japan and Europe.