Australia's
central bank cut its cash rate to an all-time trough of 2.25 percent on
Tuesday, breaking an 18-month hiatus on stimulus as it seeks to spur a
sluggish economy while keeping downward pressure on the local dollar.
The currency AUD=D4
duly sank more than a full U.S. cent after the Reserve Bank of
Australia (RBA) ended its first policy meeting of the year by announcing
the quarter point cut.
"Overall, the Bank's assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected," said RBA Governor Glenn Stevens in a brief statement.
"This
action is expected to add some further support to demand, so as to
foster sustainable growth and inflation outcomes consistent with the
target."
Markets had been leaning toward a cut this week, though only 9 of 29 analysts in a Reuters poll had tipped a move.
Interbank futures <0#YIB:> jumped on the news while pricing in a near 50-50 probability of a further move to 2.00 percent at the next policy meeting in March.
Yields on 10-year government debt AU10YT= had already been trading below the cash rate and dropped further to a record low of 2.36 percent, while Australian stocks .AXJO hit their highest since 2008.
"It's very clear their assessment of the outlook for activity is weaker," said Su-Lin Ong, a senior economist at RBC Capital Markets, adding that the RBA was now likely to trim forecasts for growth and inflation in its quarterly statement on monetary policy due out on Feb. 6.
"We have rates at 2 percent and the risk is that it heads lower," said Ong. "We are stuck in this sub-par period of growth for a long time."
"Overall, the Bank's assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected," said RBA Governor Glenn Stevens in a brief statement.
Markets had been leaning toward a cut this week, though only 9 of 29 analysts in a Reuters poll had tipped a move.
Interbank futures <0#YIB:> jumped on the news while pricing in a near 50-50 probability of a further move to 2.00 percent at the next policy meeting in March.
Yields on 10-year government debt AU10YT= had already been trading below the cash rate and dropped further to a record low of 2.36 percent, while Australian stocks .AXJO hit their highest since 2008.
"It's very clear their assessment of the outlook for activity is weaker," said Su-Lin Ong, a senior economist at RBC Capital Markets, adding that the RBA was now likely to trim forecasts for growth and inflation in its quarterly statement on monetary policy due out on Feb. 6.
"We have rates at 2 percent and the risk is that it heads lower," said Ong. "We are stuck in this sub-par period of growth for a long time."
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