While interest rates in the U.S. are predicted to go up any day now, rates in Australia could be moving in the opposite direction. After cutting the benchmark interest rate twice this year to a record-low of 2 percent, Reserve Bank of Australia (RBA) Governor Glenn Stevens said that additional cuts may be in the forecast.
The Australian Bureau of Statistics released its second quarter report of core prices Wednesday which showed an upturn of 0.6 percent from the previous quarter. The consumer price index advanced 0.7 percent from the prior three months, slightly lower than economists' forecast for a 0.8 percent increase.
Additional cuts would help invigorate employment in domestic industries and encourage economic growth which has continued for the last 24 months.
“‘A period of somewhat disappointing, even if hardly disastrous, economic growth outcomes, and inflation that has been well contained, has seen interest rates decline to very low levels,'' Australia's top central banker said. ‘‘The question of whether they might be reduced further remains, as I have said before, on the table.''
Stevens cautioned that too much easing could lead to longer-term vulnerability through risk-taking and extreme borrowing such as what occurred in the early 2000's. According to Stevens, “A balance has to be found.”
AUD at 6-Year Low
Meanwhile, while the AUD has fallen to six-year lows against the U.S. dollar and is down 21 percent since last July, the decline is not so severe against other global currencies.
According to the RBA, “… the exchange rate had thus far offered less assistance than would normally be expected in achieving balanced growth in the economy and that further depreciation seemed both likely and necessary.”