Australia Cuts Rates to Arrest Slump

Australia's slowing economy was given a shot in the arm Tuesday when the central bank cut a hefty half-percentage point from official interest rates, signaling a shift in its focus away from fighting inflation and toward safeguarding growth amid an uncertain global outlook, The Wall Street Journal reported. "Growth in the world economy slowed in the second half of 2011, and is likely to continue at a below-trend pace this year," said Glenn Stevens, governor of the Reserve Bank of Australia, in a statement following the decision to lower the official cash rate to 3.75%, its lowest since early 2010. "Growth in China has moderated, as was intended, and is likely to remain at a more measured and sustainable pace in the future." Australia's economy depends greatly on resource exports to China, the country's largest trading partner. In the first quarter, China's economy grew 8.1%, its slowest rate in three years. Mr. Stevens said that inflation, which was spurred last year by the mining boom and a series of natural disasters that pushed up food prices, has eased to a lower-than-expected level and is likely to remain within the bank's target range of 2% to 3% for the next two years. That gives the RBA scope to focus on helping segments of the economy, such as real estate and manufacturing, that have suffered from higher interest rates and the persistent strength of the Australian dollar even as the mining industry has prospered. Demand for Australia's iron ore, coal and natural gas, mostly from Asia, pushed up the dollar, which remains above parity with its U.S. counterpart. As China's growth slows and more European countries slip back into recession, the RBA is looking to boost Australia's growth outside the mining industry. Read more. (Subscription required.)