Australia lowers interest rates to 3%

The Reserve Bank of Australia cut its benchmark interest rate to the half-century low set during the 2009 global recession as hiring falters and an elevated currency hurts industries such as manufacturing and tourism.

Governor Glenn Stevens and his board reduced the overnight cash-rate target by a quarter percentage point to 3 per cent, the central bank said in a statement in Sydney today.

The rate matches the level reached from April-October 2009 that was the lowest since 1960.

In his statement, Mr Stevens said the local dollar remains "higher than might have been expected" given lower export prices and a weaker global outlook.

His decision to ease the highest policy rate among major developed economies

reflects Australia's contained wage pressure, lower projected mining spending and an unemployment rate at a 2 1/2-year high.

"The cut is an attempt to smooth the transition from resources to the broader sectors of the economy that are currency and interest-rate sensitive," said Martin

Whetton, interest-rate strategist for Australia at Nomura Holdings in Sydney.

"There feels like there's a level of frustration in the statement about the currency."

The so-called Aussie advanced after the decision, buying $1.0437 at 4.56 pm in Sydney compared with $1.0426 before the decision.

The yield on three-year government debt advanced to 2.62 per cent, up four basis points from yesterday.

Australian financial stocks declined, with the S&P/ASX 200 Finance Index falling 0.5 per cent.

"The near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued," Mr Stevens said. The local dollar's 62 per cent climb in the past four years has hurt exporters, forcing them and other companies to adapt.

The number of Australian construction jobs fell by 70,200 to 978,000 in the 12 months through August, helping lift the unemployment rate to 5.4 per cent.

Mining employment gained by 44,600 over the same period to 271,000, according to government figures.

"Looking further ahead, with the labour market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labor costs," Mr Stevens said.

"Public spending is forecast to be constrained."

Prime minister Julia Gillard and treasurer Wayne Swan have pressed the central bank to loosen monetary policy as the Labour government bids for a A$44 billion (€35 billion) swing in the budget back to surplus before an election due later next year.

The government is seeking to benefit from lower borrowing costs in an economy where about 90 per cent of mortgages have floating rates.

Bloomberg