Australia Monetary Policy


RBA cuts cash rate to three-year low

At its 4 December meeting, the Reserve Bank of Australia (RBA) cut the cash rate by 25 percentage points to 3.00%, matching the historic low reached between April and September 2009. The decision came amid an increasingly subdued outlook for the Australian economy. Recent data suggest that investment in the resources sector - which had supported economic growth in recent years - is peaking earlier and at a lower level than previously expected.

Against this backdrop, other branches of economic activity are not ready yet to pick up the slack from the mining sector, as "the near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued". Regarding price developments, inflationary pressures remain contained and the Bank maintains the view that inflation will be in line with its 2.0% - 3.0% target range over both this year and next.

The deterioration in growth prospects, combined with a scenario of contained inflationary pressures, provided a rational for the decision, as the Bank has now more room to lower interest rates in order to boost economic growth, in particular in the non-mining sectors.

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