RBA surprises many economists with interest rate cut

The Reserve Bank of Australia unexpectedly cut its main policy rate, referencing recent lower than expected inflation in the country.

The 'cash' rate was reduced on Tuesday by 25 basis points to 1.75%.

A small majority of economists had forecast that the country´s central bank would keep interest rates on hold.

Inflation had been low for some time now and when combined with the most recent inflation data and "very subdued" growth in labour costs and cost pressures elsewhere in the world the data pointed to a lower than previously forecast outlook for inflation, the central bank said in a statement.

Rate-setters in Sydney also referenced slightly lower than expected global growth, with conditions having become "more difficult" for a number of emerging market economies.

Regarding China, the RBA said growth had moderated further in the first half of the year, although recent actions by the country´s policy-makers were supporting the near-term outlook.

Officials at the RBA also noted that labour market indicators had been more "mixed" of late.

Australia´s terms of trade - defined as the ratio of export prices over those for imports - "remained much lower than they had been in recent years" the RBA said.

Commodity prices had firmed noticeably from their recent lows, but only following very substantial declines over the past couple of years, according to monetary policy-makers.

The country´s economy was continuing to rebalance following the mining investment boom and making the necessary adjustments, although an appreciating exchange rate could complicate that.

Risks emanating from the housing sector were considered by the RBA to be less than a year ago thanks to the supervisory measures which had been put in place.

As of 11:19 BST the Aussie was off by 1.13% to 0.75762 versus the US dollar.