Australia Rethinks Inflation Worries

Bloomberg reports: “Australia’s central bank lowered its benchmark interest rate today for the first time since April 2009 as inflation eases and weaker global growth threatens to slow the nation’s resource-driven economy.” The Reserve Bank of Australia cut its benchmark rate by 25 basis points to 4.5%.

Recall that Australia was among the first central banks to start raising interest rates after the financial crisis of 2008. The country still has one of the highest rates in the developed world. But at a time when the rich world is struggling with debt and sluggish growth, inflation fears aren’t nearly as strong as the hawks predicted. The Reserve Bank of Australia explains:

Trade performance, however, is starting to see some effects of a significant slowing in economic activity in Europe, where the prospects are for economic weakness to continue. Commodity prices, while still at high levels, have generally declined over recent months… After underlying inflation started to pick up in the first half of the year, recent information suggests the subdued demand conditions and the high exchange rate have contained inflation more recently