RBA cuts cash rate to record low

Reserve Bank of Australia cuts interest rates to 2.5 per cent, in line with analyst expectations.

The Reserve Bank of Australia has cut the official cash rate to a record low at its August board meeting, after noting the effects of a depreciating dollar and recent increases in the unemployment rate.

The bank cut the rate by 25 basis points to 2.5%, in line with analyst expectations.

All but one of the 13 economists surveyed by AAP expected the RBA to cut the cash rate by a quarter of a percentage point, from the already record low of 2.75%.

The RBA last cut the cash rate in May, citing the high Australian dollar, which was then above parity with its American counterpart, as one of the reasons conditions remained tough for business.

Reserve Bank Governor Glenn Stevens said the pace of borrowing has remained relatively subdued.

"At today's meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate," Mr Stevens said.

Inflation has been consistent with the medium-term target, he said.

"With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate."

Mr Stevens also noted that the Australian dollar has fallen around 15% since early April, although it remains high.

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