Australia Cuts Policy Interest Rate To Record Low

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The Reserve Bank of Australia cut its policy interest rate by a quarter percentage point Tuesday, putting the benchmark at 2%, its lowest ever. Many market participants had expected the move, with Reuters having reported the debt market pricing in a roughly 75% chance of a cut. RBA Gov. Glenn Stevens said employment and consumer demand were improving, but weak capital investment and government spending meant there would be "a degree of spare capacity for some time yet." Stevens, writing in a statement accompanying the decision, also said further depreciation for the Australian dollar "seems both likely and necessary, particularly given the significant declines in key commodity prices." The Australian currency initially fell sharply to near the 78-U.S.-cent level from 78.51 cents just before the announcement, but it quickly rebounded upward to 78.83 cents. Stocks showed some enthusiasm toward the decision, with the S&P/ASX 200 rising to a 0.7% gain from a 0.3% gain before the rate cut.

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