Australia's central bank cut its main cash rate on Tuesday for the first time since the global financial crisis more than two years ago, responding to benign inflation at home and threats to the global economy from Europe's debt emergency. The Australian dollar slipped and rate futures priced in further easing after the Reserve Bank of Australia (RBA) cut by 25 basis points to 4.5 percent.
The RBA said inflation was now likely to be more consistent with its long-term target in both 2012 and 2013. "The board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2-3 percent inflation over time," RBA Governor Glenn Stevens said in a statement.
The bank last cut rates in April 2009 when it was easing aggressively in response to the global financial crisis. A Reuters poll last week found 12 of 19 analysts had expected a cut to 4.5 percent, with the rest tipping no move. Rate futures had priced in around an 80 percent chance of a cut and still see a move to 4.0 percent by February.
Economists, however, doubted this was the start of an easing campaign given Australia's mining sector was still booming. "They've recognised that inflation is lower and they're a little bit more cautious on the global outlook," said Paul Brennan, head of market economics at Citi.
The RBA had kept rates at the highest in the developed world for almost a year, as it fretted about inflationary pressures amid a once-in-a-century mining boom. Those pressures seemed to ease recently as turmoil on global financial markets hurt business and consumer sentiment, while eroding prices for Australia's major commodity exports.