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Australian Central Bank reduces interest rate to offset mining industry slowdown

5 December 2012

Australian Central Bank

The Reserve Bank of Australia (RBA) has reduced its cash rate by 25 basis points to 3% as it steps up its efforts to offset a slowdown in the country's mining sector.

The rate cut brings the easing since May 2012 to 125 basis points and matches the trough hit during the global financial crisis, reports Reuters.

Central bank governor Glenn Stevens said that while the impact of earlier measures are yet to be determined, a further revision of the monetary policy was now appropriate.

Investment in Australia's commodities sectors has slowed as demand from overseas has tapered off.

The country rode out much of the economic gloom due to a once-booming mining industry fuelled by demand from China and other countries around the globe.

But demand from China has slowed, resulting in a slow down of exports.

Stevens said, "Risks to the outlook are still seen to be on the downside, largely as a result of the situation in Europe, though the uncertainty over the course of US fiscal policy is also weighing on sentiment at present. Around Asia generally, growth has been dampened by the more moderate Chinese expansion and the weakness in Europe.

"Key commodity prices for Australia remain significantly lower than earlier in the year, though trends have been more mixed over the past few months. The terms of trade have declined by about 15% since the peak, to a level that is still historically high," added Stevens.


Image: The Reserve Bank of Australia located in Canberra, Australian Capital Territory. Photo: Bidgee.