CANBERRA, Australia - Australia's central bank cut its key interest rate by a quarter percentage point to a record low 2.75 per cent Tuesday in an effort to boost economic growth as a mining boom cools and the strong Australian dollar erodes business profits.
Reserve Bank of Australia governor Glenn Stevens said in a statement following the bank's monthly board meeting that economic growth was below trend in the second half of 2012 and continued to be that way in 2013. Australia's long-term trend growth rate is around 3.25 per cent a year.
"Employment has continued to grow but more slowly than the labour force, so that the rate of unemployment has increased a little, though it remains relatively low," he said.
"The global economy is likely to record growth a little below trend this year, before picking up next year," he said.
Australia's jobless rate rose from 5.4 per cent in February to 5.6 per cent in March — the highest rate in more than three years.
The central bank last lowered its Official Cash Rate in December, cutting it by a quarter point to 3 per cent.
The rate last bottomed out at 3 per cent for six months in 2009 during the global financial crisis and recession.
Moments after the bank's announcement on Tuesday, the Australian dollar slid against the U.S. dollar, dropping to $1.0188 from $1.02337.
The currency ended Monday's local trading session at $1.0272.
Treasurer Wayne Swan had described the 3 per cent rate in 2009 as an "emergency low."
But he said Tuesday that Australia's economic circumstances in 2009 could not be compared with now.
The Australian dollar in 2009 was worth only 60 U.S. cents and global demand was then plummeting.
Inflation is under control so the central bank is "in a position to deploy monetary policy, particularly when faced with the fact that we have a high dollar which in itself is a consequence of the strength of our economy," Swan told reporters.
"One of the challenges that flows from the higher dollar and our domestic strength is the squeeze on profits for business across our economy caused by that higher dollar," he said.
Despite commodity prices falling as Australia's mining boom cools, the Australian dollar remains high due to demand for government bonds which are viewed by investors as a safe haven and have higher returns compared with U.S. and Japanese government bonds.
Australia is now only one of eight countries with a triple-A credit rating on its debt from all three major rating agencies — Standard
The International Monetary Fund said last month that it expects the Australian economy to return to trend growth in 2014, despite the economic damage being caused by a high Australian dollar.
The IMF kept its 2013 growth forecast for Australia at 3 per cent. It raised its forecast for 2014 to 3.3 per cent from 3.2 per cent.