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Australia's central bank cut its benchmark interest rate by a quarter percentage point on Tuesday, taking it to its lowest level since the peak of the global financial crisis, as uncertainty over the United States' fiscal policy and stubbornly weak conditions in Europe prompted concerns for the Australian economy.
The Reserve Bank of Australia's decision to lower the rate to 3 percent marked the bank's fourth rate cut this year and was widely predicted by economists. The fiscal policy stalemate in Washington, Europe's financial woes, lower commodity prices and an economic slowdown in China — Australia's biggest export market — prompted the decision, Reserve Bank Governor Glenn Stevens said in a statement.
The bank last dropped the rate to the record low of 3 percent in April 2009 in a bid to stimulate the economy during the height of the global financial crisis.
Australia's economy remained relatively strong during the downturn, as Chinese demand for the nation's vast mineral resources — particularly iron ore — fueled a mining boom. But China's slowing economy has prompted concerns that the boom could be over sooner than initially expected; in October, Stevens predicted it would hit its peak next year. That has prompted the bank to try and kick-start the nation's nonmining sector with rate cuts.
"Recent data confirm that the peak in resource investment is approaching," Stevens said Tuesday. "Available information suggests that the near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued."
The bank's decision also follows the release of weaker-than-expected retail spending data just weeks before Christmas. The Australian Bureau of Statistics on Monday reported retail spending remained flat in October, surprising economists who had predicted a rise of 0.4 percent.
Treasurer Wayne Swan was quick to counter concerns about the nation's financial health, saying Australia remained in great shape.
"Anybody who thinks that rates are at the same levels now for the same reason they were at lows during the global financial crisis simply can't be taken seriously when it comes to economic policy," he told reporters in Canberra, noting that the Australian dollar was at around 60 U.S. cents during the downturn. It now fetches around $1.04.