Update: 2:31 PM
The Reserve Bank of Australia has reduced the official interest rate for the second time this year to a new historic low of 2 per cent at its board meeting today.
“Low interest rates are acting to support borrowing and spending, and credit is recording moderate growth overall, with stronger lending to businesses of late, ” said the RBA in a statement.
The Bank said it is currently working with other regulators to assess and contain risks that may arise from the housing market that has been steady over recent months.
In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates.
According to the RBA, the Australian dollar has declined noticeably against a rising US dollar over the past year, although the drop is smaller against a basket of currencies.
“Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices”.
The Reserve Bank of Australia is widely expected to cut the official interest rate for the second time this year to a new historic low of 2 per cent at its board meeting on today.
Out of 29 economists surveyed by Bloomberg, 25 predict a quarter-point drop in the country’s rate target. The credit market has been pricing in a better than 75 per cent possibility that borrowing costs will be lowered.
The share market has opened on positive note as investors are cautious ahead of the meeting.
The RBA is concerned about increasing property prices, particularly in Sydney and Melbourne, but economists believe it is the time to act due to weak business investment and strengthening currency.
Low commodity prices have darkened an already grim outlook for mining investment, while other sectors showed little sign of picking up the slack.
The RBA held interest rates unchanged at 2.25 per cent for the second month in row in an early April meeting after the first reduction in 18 months in February.