Reserve Bank of Australia Leaves Cash Rate at 2 Percent

Reserve Bank of Australia Governor, Glenn Stevens and his board left the cash rate at 2 percent on Tuesday, citing weaker economic growth and the need to make available cheaper loans to encourage investments.

Though cheap borrowing costs have not really worked except in the property market, a situation, the governor described as “crazy”. The report has it that investors are expecting another 30 percent rate cut by November because of a continuous fall in the prices of key exports.

Australia’s medium-term potential growth is expected to be around 2.5 percent compared with 3.25 percent recorded in the past. So far, poor exports continue to hurt manufacturing as can be seen by the data released early today, where the trade balance deficit rose from 2.79 billion to 3.10 billion, exceeding analysts’ expectation of 2.48 billion.

Also, the local dollar has been struggling for months and recorded the biggest drop among major currencies last quarter, losing 9 percent between June-September.

However, bank officials including the governor seem to be relatively content with the current level of the Australian dollar and reiterated the apex bank is keeping a close eye on the US Federal Reserve interest rate decision.

The Australian dollar rose to 0.71332 from 0.70701 immediately after the report was made available to the press, officials are confident the long-awaited rate increase would help eliminate upward pressure on the Australian dollar.