Australia slashes interest rate as mining woes feed fears
In a move that caught more than one investor by surprise, Australia’s Reserve Bank (RBA) announced Tuesday it was cutting its interest rate, prompted by worries of a sluggish mining industry, falling commodity prices and concerns over China.
The decision, aimed mainly at protecting Australia against the worldwide slowdown, offers nations that depend heavily on Chinese investors — such as Canada— a glimpse of what to expect in the event of an extended economic downturn in the Asian country.
The Aussie economy has been, for years, fuelled by China’s robust growth, which has become a main consumer of Australian coal and iron ore, boosting the country’s budget.
Australia’s annual GDP growth rate is 3.7% while its unemployment rate is only 5.1%. But recent signs of a major decline in the country’s resource sector pushed Australia’s RBA to cut its key interest rate down to 3.25%.
The stock market reacted positively to the measure. This morning, giants such as BHP Billiton (ASX:BHP), Rio Tinto (ASX:RIO) and Woodside Petroleum (ASX:WPL) each rose over 1% each. The Australian dollar, however, sank to a four-week low.