Australia's central bank cut its benchmark interest rate Tuesday by a quarter percentage point to 7.0 percent in its first rate reduction in nearly seven years amid slowing economic growth, reported ap. The widely-anticipated move was the first cut in the cash rate since Dec. 5, 2001. Reserve Bank of Australia Governor Glenn Stevens said in a statement that while inflation remained high, factors including high oil prices and lower assets values, including the housing market, had subdued demand. Surveys indicated that business activity and production growth had slowed, and «considerable uncertainty» surrounded the outlook for demand and inflation, he said. «On balance, however, it is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead,» Stevens said. Since late 2001, the central bank has ratcheted up rates by a quarter percentage point on a dozen occasions. The last rise was in March. The bank manipulates the rate to keep annual inflation within a 2-3 percent range. The inflation rate is currently well above that at 4.5 percent, fueled by China and India's burgeoning demand for Australian iron ore and coal. Stevens said Tuesday that his board expected inflation to decline over time. Indications that the economy has rapidly slowed in recent months has led to criticism that the central bank had lifted interest rates too high and risked creating a recession. Prime Minister Kevin Rudd was quick to take credit for the rate cut which he told Parliament will bring «some modest relief to mortgage holders right across Australia.» He said the bank's decision reflected the responsible economic approach his government had taken since it was elected in November last year. «Its organizing principle in large measure was to put downward pressure on inflation; downward pressure on interest rates,» Rudd told Parliament Tuesday of his government's first annual budget for the current fiscal year which began on July 1. RBC Capital Markets senior economist Su-Lin Ong said the central bank has given an opportunity to cut rates because the commercial banks had independently boosted their own rates in response to a global credit squeeze. «That has obviously combined to deliver some real restraint on demand and that is why the bank is moving,» she said in a statement. Commonwealth Bank of Australia chief economist Michael Blythe said the tone of Steven's statement suggested that the central bank was more likely to cut rates again in November, rather than October. «While there's nothing there to stop them cutting again, you don't get the feeling it will be followed up by another move next month,» Blythe said. «It's the fact that inflation is uncomfortably high and will remain high for a while,» he added.
