Governor Glenn Stevens will lower the overnight cash rate target to 3.25 percent from 4.25 percent at 2:30 p.m. in Sydney today, according to 11 of 20 economists surveyed by Bloomberg News. Nine predict a three-quarter point reduction.
A slump in global demand for exports, rising unemployment and a contraction in business borrowing is increasing pressure on Stevens to extend the biggest round of rate reductions in almost two decades. Australia’s benchmark rate is among the highest in the developed world, dwarfing the U.S. Federal Reserve’s 0.25 percent level and more than double the European Central Bank’s 2 percent setting.
Australia’s economy may already have followed the U.S., U.K., Japan and Europe into a recession after gross domestic product rose 0.1 percent in the third quarter, the weakest pace in eight years.
Miners BHP Billiton Ltd. and Rio Tinto Group, retailer Harvey Norman Holdings Ltd. and banks such as Australia & New Zealand Banking Group are among companies firing workers as profits decline.
Reports published this year show the nation’s jobless rate rose to a two-year high of 4.5 percent in December as companies slashed 43,900 full-time jobs, bank lending unexpectedly fell for the first time since 1992, manufacturing contracted in January for an eighth month, and house prices dropped for a third straight quarter.
Australia’s economy will probably shrink 0.2 percent this year, according to the International Monetary Fund, which last week revised its previous prediction of a 1.8 percent expansion. The IMF said global growth in 2009 will be the weakest in 60 years.
The threat of a long and deep economic slump may prompt the Reserve Bank to cut the rate to less than 2 percent, former Governor Bernie Fraser said in an interview on Jan. 23.
To offset stalling growth, Stevens and his board have lowered borrowing costs by three percentage points since early September, including a one percentage point reduction when they last met in early December.
A one percentage point reduction today would push the benchmark rate to the lowest level since February 1964, according to historical figures provided by the Reserve Bank.
Australia’s central bank is set to follow other policy makers who have cut borrowing costs to unprecedented levels as fallout from the global credit crunch saps demand for exports and cuts growth and employment.