Australia Cuts Rates To 49-Year Low, Signals 'End Of Cycle'

HONG KONG (Dow Jones) -- The Reserve Bank of Australia on Tuesday cut interest rates by a quarter-point and noted mortgage rates are at historical low levels, marking its clearest signal yet that the interest-rate cycle has bottomed.

The cash rate will fall to 3% effective Wednesday, a 49-year low.

"There has already been a major change in both monetary and fiscal policy in Australia," said Governor Glenn Stevens in a statement published on the Reserve Bank's Web site Tuesday along with the rate decision.

"Market and mortgage rates are at very low levels by historical standards and business loan rates are below recent averages, reducing debt-servicing burdens considerably."

In its previous 14 monthly meetings the Reserve Bank has hiked interest rates twice and reduced them five times. Tuesday's decision brings the cumulative reduction in interest rates since September to 4.25 percentage points.

Stevens noted there were early signs of improvement in the world economy, particularly in China, which ranks as Australia's largest trading partner. He noted it was too early say if recent pick-ups would last.

He also cautioned that near-term assessments of the global economy have been marked downward.

Still, hefty stimulus and monetary policy actions taken around world should be contain the downturn for the rest of this year, he said.

Analysts said the Reserve Bank's rate cut Tuesday would do little to further kick start borrowing or spending and appeared designed more as a public confidence booster.

"Effectively this is just 'window dressing' and is aimed at stabilizing sentiment rather than offering significant support to the economy," SocGen economist Glenn Maguire wrote in a note emailed to reporters Tuesday.

Maguire added that Australia was likely to post flat growth this year, but avoid contraction, making it one of the best performers among industrialized nations.

He added it was clear from the language in Stevens' comments accompanying the rate decision that there was little in the way of future policy cuts under consideration.

"The Bank has given unusually direct guidance that this easing cycle is now over -- or at the very least, monetary policy will be on hold for an extended period," Maguire said.

Doubts about the future direction of policy were clarified in the concluding paragraphs of Stevens' statement.

Stevens jettisoned references that monetary policy settings would be evaluated at coming board meetings.

Instead, Stevens concluded: "The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead."