The Reserve Bank of Australia (RBA) decided on Tuesday to lower the cash rate by 25 basis points to a record low 2 per cent, effective 6 May 2015. The decision to reduce rates by 25 basis points was widely expected, even as the economy is showing signs of improvement and as the housing market continues to heat up.
The Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand. The RBA’s last cut came in February (its first move in 18 months) following an easing spree by global central banks to battle deflation amid a fall in oil prices.
The Australia dollar fell sharply on the news down to below 0.7790 before surging higher to back above 0.79 all within 10 minutes of the decision being made public. Further currency depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.
You can read the Statement by Glenn Stevens, Governor: Monetary Policy Decision