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Market Update

Australia Lowers Rate to Record Low 2.5%, Trade Surplus Widens

Author: Marcus Jacob
Last Update: 6:44 AM ET August 06 2013

4:45 PM Sydney – Reserve Bank of Australia lowered its key lending rate by 25 basis points to 2.5% and held out possibility of another rate cut. As the mining boom wanes, central bank prepares to rebalance economic growth and lower dollar helped trade surplus to widen in June.

Australian market indexes closed lower and the dollar edged higher after RBA lowered rate to a record low of 2.5%.

The Reserve Bank of Australia cut the key lending rate by 25 basis points as the central bank tackles to deal with the waning mining industry boom.

RBA Governor Glenn Stevens in a brief statement said “taking account of recent information on price and activities” the policy committee decided that additional “decline in cash rate was appropriate.”

The latest rate cut is the eight by the central bank since it began to lower the reference rate in November 2011 and the rates are now lower than they were at the peak of global financial markets crisis in 2008 and 2009.

Traders and economists are talking about another rate but by the end of the year of 25 basis points as the central bank prepares economy with subdued mining and resource sector activities.

Several banks immediately passed on lower rates to customers, in a stark contrast to moves by banks at the time of previous rate cuts.

National Australian Bank and ING Direct passed on the latest rate to customers and Westpac Banking Corp lowered rates by 28 basis points.

Australian dollar rebounded from the 3-year low on Monday and close at 89.50 cents against one U.S. dollar and the dollar weakness is helping the economy.

The decline in Aussie dollar was welcomed by the government and also by the central bank. Australian government is already struggling with the revenues and has estimated estimate by $33 billion over the next four years.

An increase in exports driven by the rising mining investment was reflected in June month trade surplus data.

Trade surplus increased to $602 million, fifth month of higher than expected international data.

In addition, housing market also showed some signs of vitality as lower rates work its way through the system.

Home prices increased 2.4% in the second quarter, the Australian Bureau of Statistics said today. The quarterly increase in prices was the largest in three years.

Australian dollar higher to 89.89 U.S. cents and in stock trading turnover climbed to 703 million shares worth $3.9 billion.
The ASX 200 index fell 9.40 to close at 5,101.90 and the broader All Ordinaries slid 5.80 to 5,088.

Stocks in Review

Rio Tinto rose 24 cents to $59.86 and BHP slid 13 cents to $35.62. Woodside Petroleum Limited declined 46 cents to $38.76.

David Jones Limited added 2 cents to $2.74 and Breville Group fell 3 cents to $7.64. Woolworths slumped 27 cents to $33.11.

Mirvac Group gained 5 cents to $1.65 and Lend Lease lowered 6 cents to $8.98.

Westpac decreased 13 cents to $31.24 after the bank will cut its home loan rates by 28 basis points to 5.98%.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc