RBA 'uses scope' to deal rate relief

by AB08 May 2013

RBA governor Glenn Stevens has said the bank hopes to stimulate demand with its move to cut the cash rate to a record low.

In a statement following the Reserve Bank's decision to cut the official cash rate by 25bps to 2.75%, Stevens noted that the RBA had long flagged the possibility of impending cuts.

"The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today's meeting the Board decided to use some of that scope," Stevens said.

The rate cut, the first since December of last year, brings the cash rate to record low. Stevens said the cut "was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target".

Stevens noted that previous rate cuts were beginning to boost "interest-sensitive areas of spending", but said the Bank saw scope to provide further support to the economy.

"The exchange rate, on the other hand, has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time. Moreover, the demand for credit remains, at this point, relatively subdued," he said.