The Reserve Bank of Australia lowered its benchmark interest rate by a quarter point as inflation outlook provided the space for monetary policy easing.
As expected by economists, the policy board governed by Glenn Stevens on Tuesday decided to cut the cash rate by 25 basis points to a record low of 2.00 percent, effective May 6.
This was the second reduction this year. The bank last reduced the rate by 25 basis points in February.
"The Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand," the bank said in a statement.
Today's rate cut is unlikely to be the last in this cycle, Paul Dales chief Australia & NZ economist at Capital Economics said.
According to Dales, both GDP growth and underlying inflation will be weaker this year than the RBA expects suggests that rates could yet fall to 1.5 percent by December.
Nonetheless, Westpac Economist Bill Evans said despite an ongoing drag from mining and non-mining business investment there will be a sufficient lift in household demand (both consumption and dwelling investment) to justify a 3 percent growth rate in 2016.
The RBA will unveil its quarterly economic forecasts in the Statement on Monetary Policy to be released on Friday.
The economy is likely to operate with a degree of spare capacity for some time yet. Inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate, the bank said.
Policymakers of RBA today observed that further depreciation of the Australian dollar seems both likely and necessary, particularly given the significant declines in key commodity prices.
Low interest rates supported borrowing and spending. Growth in lending to housing has been steady and dwelling prices rose strongly, especially in Sydney. The bank is now working with regulators to contain risks associated with the housing market.
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