Reserve Bank of Australia cuts to 1.75% on weak inflation, kiwi dollar gains vs Aussie

Tuesday 3rd May 2016

The Reserve Bank of Australia has cut its cash rate by 25 basis points 1.75 percent, sending the kiwi sharply higher against the Australian dollar.

Governor Glenn Stevens explained the move by citing concerns that inflation was weaker than expected.

"Inflation has been quite low for some time and recent data were unexpectedly low," he said. "While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast".

Stevens added that worries about the impact of lower rates on the housing market had abated. "At present, the potential risks of lower interest rates in this area are less than they were a year ago".

The RBA has an inflation target range of 2 percent to 3 percent but the consumer price index in Australia is currently 1.3%.

In the moments prior to the announcement, the kiwi dollar was trading at 91.34 Australian cents. Immediately following the decision it posted a 1.7% gain to 92.94 Australian cents, before trading at 92.44 cents, a gain of 1.2%.

BusinessDesk.co.nz

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