Australia cuts rates to historic low

May 05, 2015, 4:30 AM EDT
Australian dollars are shown March 10, 2015 in Sydney, Australian. Forecasters say the Australian Dollar could fall to US 50c over the next few years due to the surprising strength of the U.S. job market.
AFP/Getty Images

The Reserve Bank of Australia (RBA) has cut its key interest rate by 25 basis points to an all-time low of 2%, writes the BBC.

Rising property prices in Australia's biggest city, Sydney, a strong currency and a drop in iron ore prices are among the reasons for the cut. The cut is the second this year, following a previous 25 basis point cut in February.

The RBA's move follows similar action from central banks in China, Canada, Singapore, Korea and India. A rising Australian dollar had also been cause for concern. The currency started to fall against the U.S. dollar on the RBA's announcement.

"The RBA has done the right thing," said economist Shane Oliver from AMP Capital. "Sure, surging Sydney house prices are a concern but interest rates need to be set for the national 'average', not just one city," he said.

"And the 'average' is telling us Australia needs lower interest rates: growth is sub par, the business investment outlook is poor, national income is getting hit hard by the falling iron ore price and house price gains outside of Sydney are soft."

The RBA's move also follows worrying official trade numbers released on Tuesday which showed the country's trade deficit had missed expectations in March.

The Australian Bureau of Statistics (ABS) said the deficit had narrowed by a seasonally adjusted 18% to 1.32bn Australian dollars ($1.03bn). Analysts said the numbers were due in part to falling iron ore and coal exports.