RBA Cites Weak Growth Outlook in Cutting Cash Rate to 2%

Australia cut interest rates to a fresh record low in response to a weak economic outlook and to discourage further strengthening in the currency.  Governor Glenn Stevens and his board lowered the key rate to 2 percent from 2.25 percent, the Reserve Bank of Australia said in a statement Tuesday. The move was predicted by traders and by 25 of 29 economists surveyed by Bloomberg.

Policy makers warned last month that investment in industries outside mining, which were supposed to pick up slack in the economy, could fall. The government, which is due to release its annual budget May 12, is unlikely to add stimulus to an economy that is growing below potential and hampered by a rebounding currency and slumping iron ore prices.

There is “the risk that mining investment could be even lower than currently expected given lower commodity prices,” Felicity Emmett, a senior economist at Australia & New Zealand Banking Group Ltd. who predicted a cut, said in a research report before the release. The RBA’s decision likely reflects a “downgrade to its forecast trajectory for growth.”