Australia's rate cut


Australian consumers will get “a good kick” from the country’s central bank’s surprise decision to deliver the biggest interest rate cut in three years, the head of the country’s largest electronics retailer said.

The 0.5 percentage point drop in the Reserve Bank of Australia’s benchmark interest rate to 3.75 percent “will help an awful lot” as retailers struggle to reverse consumer sentiment, which has deteriorated for eight of the past 10 months, said Gerry Harvey, chief executive of Harvey Norman. “A third of the economy just got a nice little increase in their pay packets,” he said, referring to the proportion of households with mortgage debt.

The RBA said inflation would likely be lower than expected for the next two years, leaving the door ajar for further easing if needed.

The local dollar fell about three-quarters of a cent and government bond yields hit 60-year lows following the cut. Markets had predicted only a quarter point easing.

Driving the larger move was the need to get mortgage rates down to stimulative levels.

– (Bloomberg, Reuters)