The decision to announce the latest 2.25% rate cut was prompted by deteriorating forecasts from banks on non-mining activities, Reserve Bank of Australia (RBA) governor Glenn Stevens said.
"When we tried to look ahead, we concluded that there were fewer signs of a further pick-up in non-mining activity than we had hoped to see by now," Stevens said in his opening statement to the House of Representatives Standing Committee on Economics in Sydney.
The move to slash 25 basis points was RBA’s “first for a year and a half and came after assuring the market for months that the most prudent course of action was a period of stability”.
In its revised forecasts, the RBA board indicated a longer period of below-growth trend, a higher unemployment rate and lower inflation than previously forecast.
He added that this forecast "warranted consideration of some further adjustment to monetary policy, after a fairly long period during which the cash rate had remained steady".
Stevens also argued that it is unlikely for the RBA to slash the rates further down to 0%, despite speculations by industry observers.
“I don’t think that we will end in that position. Nobody can be 100 per cent sure of these things obviously, but I would very much hope we don’t,” he said.
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