Heeding the distress call of Australian retailers, the Reserve Bank of Australia has cut the interest rate by 0.25 percentage points to 2.75 per cent - the lowest level in five decades.
Retail sales fell 0.4 per cent in March, with household goods and clothing retailers suffering the biggest declines, according to figures released by the Australian Bureau of Statistics on Monday.
Despite the relief to retail sector, RBA’s move comes as a surprise given all the 13 economists surveyed by AAP predicted the rates to stay on hold, at least this time around.
While sales were down for March, in volume terms they were up 2.2 per cent in the first quarter of the year, the fastest rise in six years, according to Bureau of Statistics data.
General expectations of rate cuts grew in the past month following a rise in the unemployment rate and disappointing home building approvals figures, as well as news inflation was under control.
Inflation remained subdued, rising 0.3 per cent in April, as the prices of fruits and vegetables rose while petrol prices fell, a private gauge found.
While the Reserve expects unemployment to gradually tick up towards 5.75 per cent this year, the current level - 5.6 per cent - is already close to that.
National Australia Bank senior economist David de Garis said earlier the RBA would do more to stimulate the economy this year and said he was expecting two rate cuts by December.
"There's quite a lot of water to flow under the bridge before June, it doesn't sound like they are in a super hurry right now so they might be inclined to hold off for another month," he said.
What will the banks do and how do you benefit?
If passed on in full by retail banks, the cut will take the average standard variable mortgage rate down to around 6.2 per cent, which is still higher than the 5.75 per cent low seen during the peak of the global financial crisis in 2009.
CommSec's figures show the record low standard variable home loan rate was 5 per cent in May 1964.
A 25-basis-point reduction will take just under $50 a month from the repayments on a $300,000 loan on a 25-year term.
The homebuyer with an average sized $300,000 mortgage stands to benefit about $49 a month, that is if the banks pass the rate cut on in full.
Australian house prices rose in the first three months of 2013 - but not by much.
Figures released by the Australian Bureau of Statistics show house prices rose 0.1 per cent across the eight capital cities in the March quarter.
That was well below the 1.8 per cent rise economists had forecast and the 2.8 per cent rise recorded by property research firm RP data over the same period.
Rumours swirled around markets yesterday evening that billionaire US investor George Soros may have taken a $1 billion short position against the currency - Mr Soros famously profited from successfully shorting the British pound early in the 1990s, despite attempts by the Bank of England to prop the currency up.
The Australian dollar fell from around 102.9 US cents when Australian markets wrapped up trade yesterday afternoon to a low around 102.2 overnight, before bouncing back to 102.5 US cents by 9:18am (AEST.
However, the Commonwealth Bank's chief currency strategist, Richard Grace, says a billion dollars is actually small change compared to the size of the market for Australian dollars.
"The average daily turnover for the Australian dollar is $250 billion per day, so I think a $1 billion short position is not something that would draw too much alarm out of market participants," he told ABC News Online.Governor's statementAt its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.75 per cent, effective 8 May 2013. The global economy is likely to record growth a little below trend this year, before picking up next year. Among the major regions, the United States continues on a path of moderate expansion and China's growth is running at a more sustainable, but still robust, pace. Japan has announced significant new policy initiatives aimed at strengthening demand and ending deflation. The euro area remains in recession. Commodity prices have moderated a little in recent months though they remain high by historical standards. Financial conditions internationally continue to be very accommodative, with risk spreads reduced, funding conditions for most financial institutions improved and borrowing costs for well-rated corporates and sovereigns exceptionally low. Growth in Australia was close to trend in 2012 overall, but was a bit below trend in the second half of the year, and this appears to have continued into 2013. Employment has continued to grow but more slowly than the labour force, so that the rate of unemployment has increased a little, though it remains relatively low.