By ROD McGUIRKCANBERRA, Australia (AP) â¿¿ Australia's central bank cut its benchmark interest rate to a record low 2.5 percent Tuesday because of slower growth and weakening commodity prices. The Reserve Bank of Australia's quarter percentage point rate cut at a monthly board meeting comes in the first week of a federal election campaign and was expected by economists. The bank last cut the Official Cash Rate, which is a benchmark for commercial lending rates, by a quarter point in May, following four cuts in 2012. Australia has enjoyed a decade-long boom in mining and related construction that helped it avoid recession during the global financial crisis. Growth, however, is now slowing as China's economy cools and drags down prices for commodities such as iron ore and coal. The government last week nearly doubled its budget deficit forecast for the fiscal year through June 2014 to 30.1 billion Australian dollars ($26.8 billion) as slowing growth weighs on tax revenues. In a statement, the central bank's governor Glenn Stevens said growth was below the long-term trend level of 3 percent as the economy adjusts to lower levels of mining investment, but there was a "reasonable prospect" of it picking up in 2014. Stevens said the Australian dollar was still quite high despite a fall of 15 percent since April. The currency was little changed at just below $0.90 immediately after the rate announcement. "It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy," he said. "Commodity prices have declined but, overall, remain at high levels by historical standards." The government last week downgraded its economic growth forecast for the current fiscal year from 2.75 percent to 2.5 percent and raised its unemployment forecast for the year from 5.75 percent to 6.25 percent.
Australian Retailers Association executive director Russell Zimmerman said the central bank was stepping in to "save the furniture" amid a lack of economic leadership."The RBA have provided some relief to Australian retailers, although it is concerning that this cut has come on the back of flat retail sales, predictions of rising unemployment and falling consumer and business confidence," he said in a statement. The Australian Chamber of Commerce and Industry welcomed the rate cut as providing much-needed relief for struggling businesses. But the government could not rely on the central bank alone to bolster the economy as it adjusts to the end of the mining boom, the chamber's chief executive Peter Anderson said. "Clearly other areas of economic management are falling well short of the mark and dragging on confidence," Anderson said in a statement. "That includes not delivering on budget undertakings, poorly targeted spending, and a series of tax increases," he said. The conservative opposition seized on the rate cut as an indictment of the economic management of the center-left Labor Party government, which has forecast deepening deficits due to dwindling company tax revenue. Labor has ruled since 2007 and hopes for a third three-year term at elections on Sept. 7. Opposition treasury spokesman Joe Hockey said interest rates were now even lower than during the global recession in 2009 when Prime Minister Kevin Rudd described a 3 percent central bank rate as an "emergency level." "The Reserve Bank has cut interest rates to record low levels because the economy is struggling under Kevin Rudd," Hockey told reporters. "Business and consumer confidence in the United States is in better shape than business and consumer confidence in Australia and one of the key reasons for this is that Australians are worried about their jobs," he said. The government has defended it economic credentials, boasting the Australia is one of only eight countries with a triple-A credit rating from all three major ratings agencies. Australian government debt remains low compared with most Western countries.
"Australian families and business know that lower interest rates are a good thing, especially with the economy continuing to grow," Treasurer Chris Bowen said.The 2.5 percent policy rate is the lowest since the central bank's inception in 1960.