AUSTRALIA'S central bank signaled it may cut borrowing costs for the first time in almost seven years as slowing economic growth cools inflation.
"With demand slowing, the board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing," Governor Glenn Stevens said yesterday in Sydney after keeping the overnight cash rate target at 7.25 percent. He has raised the rate four times in the past 12 months.
The Australian dollar fell to a three-month low after traders bet Stevens, 50, will cut rates as soon as next month as the economy slows, forcing companies, including Qantas and Starbucks to fire workers. Retail sales, consumer confidence and house prices have all fallen considerably since the Reserve Bank last raised the benchmark in March.
"They've gone from neutral and moved to a very clear easing bias," Su-Lin Ong, senior economist at RBC Capital Markets Ltd in Sydney, told Bloomberg News. "There is a real acknowledgement that financial conditions are too tight."
Stevens could join other central bankers around the world who have cut borrowing costs to cushion their economies from slower growth. New Zealand cut its key rate last month for the first time in five years. Australia's benchmark is 5.25 percentage points higher than the Federal Reserve's rate.
Australia's benchmark S&P/ASX 200 Index pared losses as the Commonwealth Bank of Australia Ltd, the nation's biggest mortgage lender, led a rally by banks. "The Reserve Bank is pretty much indicating it's ready to cut rates, and banks are the first to turn when it looks like stimulation is coming," said Prasad Patkar, of Platypus Asset Management.