Australia’s economy contracted for the first time since 2000. It shrunk by -0.5% which was far more than the expected growth of 0.2%. This brings the economic growth rate in 2008 to 0.3% from 1.2%. Interestingly enough, over the last 5 days the expectation for Australia’s growth rate rose from 0.4% to 0.5% on the quarter and from 1.1% to 1.2% YoY.
Yesterday, the Reserve Bank of Australia left rates steady for the first time in seven months, at 3.25%. Governor Glenn Stevens cited the superior performance of the monetary transmission mechanism as reason for holding off on further rate cuts. He stated that “demand has not weakened as much as in other countries” and that the “Australian financial system remains strong” because of the fluid nature in which end-users are beneficiaries of central bank liquidity easing.
At it's Feb 3rd meeting, the central bank slashed the overnight cash rate by 100 basis points; the lowest level in 45 years. The accompanying statement said that the combination of liquidity easing with fiscal stimulus would "help to cushion the economy from the contractionary forces coming from abroad."
The Australian Dollar plummeted 45 pips in the seconds following the release of the data.