RBA cuts official cash rate to new low of 1.5%

The Reserve Bank of Australia has cut the official cash rate by 25 basis points to a new low of 1.5% for the month of August.

The RBA last cut the cash rate in May, when 25 basis points were cut from the rate to take it to 1.75%. In response to the May cut, many of Australia’s lenders, including the big four banks, passed on savings to their business customers.

RBA governor Glenn Stevens said in a statement today the RBA board believes easing monetary policy settings will improve prospects for sustainable growth in the Australian economy.

Stevens said inflation is expected to remain low, given subdued growth in labour costs and “very low cost pressures elsewhere in the world”, although existing low interest rates have supported domestic demand.

“In Australia, recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment,” Stevens said.

“Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term.”

Stevens said the outlook for global economic growth is mixed.

“The global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China’s growth appears to be moderating,” he said.

“Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.”

The cut to the official cash rate will be effective from Wednesday, August 3.