In a surprising move, the Reserve Bank of Australia cut its overnight interest rate by 0.25% to 3.0%. Economists had expected the bank to leave the policy rate unchanged at its meeting this afternoon.
Despite mortgage rates that are “at very low levels by historical standards,” the “Board judged that there was scope for further modest adjustment to the cash rate,” the RBA official announcement said.
It may be that this was the last rate cut. “The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” the accompanying statement said. These words may imply that the central bank sees the fiscal policies of Prime Minister Rudd and Treasurer Swan as substantial complements to Governor Bollard’s 8-month, 425 basis point move.
During the G20 meeting, The Australian newspaper reported that Rudd and co. may have their sights set on a third stimulus package. When pressed about unemployment forecasts, Treasurer Swan said that he would not "speculate about what (unemployment) levels will be in the forecasts in the May budget."
Markets initially reacted to the surprise move by massively selling the Australian Dollar. Markets faded the initial reaction as the release of the accompanying statement hinted at a halt in further monetary action.
