Australia Lowers Rate to Record Low 2.5%, Trade Surplus Widens

Marcus Jacob
06 Aug, 2013
New York City

Reserve Bank of Australia lowered its key lending rate by 25 basis points to 2.5% and held out possibility of another rate cut. As the mining boom wanes, central bank prepares to rebalance economic growth and lower dollar helped trade surplus to widen in June.

[R]4:45 PM Sydney – Reserve Bank of Australia lowered its key lending rate by 25 basis points to 2.5% and held out possibility of another rate cut. As the mining boom wanes, central bank prepares to rebalance economic growth and lower dollar helped trade surplus to widen in June.[/R]

Australian market indexes closed lower and the dollar edged higher after RBA lowered rate to a record low of 2.5%.

The Reserve Bank of Australia cut the key lending rate by 25 basis points as the central bank tackles to deal with the waning mining industry boom.

RBA Governor Glenn Stevens in a brief statement said “taking account of recent information on price and activities” the policy committee decided that additional “decline in cash rate was appropriate.”

The latest rate cut is the eight by the central bank since it began to lower the reference rate in November 2011 and the rates are now lower than they were at the peak of global financial markets crisis in 2008 and 2009.

Traders and economists are talking about another rate but by the end of the year of 25 basis points as the central bank prepares economy with subdued mining and resource sector activities.

Several banks immediately passed on lower rates to customers, in a stark contrast to moves by banks at the time of previous rate cuts.

National Australian Bank and ING Direct passed on the latest rate to customers and Westpac Banking Corp lowered rates by 28 basis points.

Australian dollar rebounded from the 3-year low on Monday and close at 89.50 cents against one U.S. dollar and the dollar weakness is helping the economy.

The decline in Aussie dollar was welcomed by the government and also by the central bank. Australian government is already struggling with the revenues and has estimated estimate by $33 billion over the next four years.

An increase in exports driven by the rising mining investment was reflected in June month trade surplus data.

Trade surplus increased to $602 million, fifth month of higher than expected international data.

In addition, housing market also showed some signs of vitality as lower rates work its way through the system.

Home prices increased 2.4% in the second quarter, the Australian Bureau of Statistics said today. The quarterly increase in prices was the largest in three years.

Australian dollar higher to 89.89 U.S. cents and in stock trading turnover climbed to 703 million shares worth $3.9 billion.
The ASX 200 index fell 9.40 to close at 5,101.90 and the broader All Ordinaries slid 5.80 to 5,088.

Stocks in Review

Rio Tinto rose 24 cents to $59.86 and BHP slid 13 cents to $35.62. Woodside Petroleum Limited declined 46 cents to $38.76.

David Jones Limited added 2 cents to $2.74 and Breville Group fell 3 cents to $7.64. Woolworths slumped 27 cents to $33.11.

Mirvac Group gained 5 cents to $1.65 and Lend Lease lowered 6 cents to $8.98.

Westpac decreased 13 cents to $31.24 after the bank will cut its home loan rates by 28 basis points to 5.98%.

Commonwealth fell 0.2% to $73.53. National Australia Bank slid 2 cents to $31.06 and ANZ slipped 6 cents to $29.76.

Cochlear Limited jumped 1.4% to $60 after the hearing devices maker reported net profit in the year ending in June surged 133% to $132.5 million from a year earlier. In June, Cochlear estimated profit for the year between $130 million and $135 million.

Revenue for the year dropped 3% to $752.72 million from $779 million a year ago

Downer EDI Limited slid 0.5% to $3.89 after the infrastructure developer said total revenue in the year ending in June grew 3% to $8.38 billion from $8.07 billion a year ago period. Net profit for the year soared 10.4% to $215.43 million compared to $195.22 million a year earlier.

The group infrastructure business revenue climbed 13.1% to $5.2 billion and mining revenue increased 3.7% to $2.6 billion. Rail business revenue jumped 4% to $1.3 billion

Leighton Holdings Limited dropped 2.1% to $16.96 after the engineering company agreed with Main Roads Western Australia on construction of Gateway WA Perth airport and freight access project valued $1 billion. The company said cost targeted for the contract of $899 million.