Australia readies for landmark interest rate cut

Australia’s resource-rich economy dodged the worst of the global financial crisis, but rising unemployment, low wages and below-target inflation are stoking fears about the health of the economy Down Under.

Analysts and investors are almost unanimous in their view that the Reserve Bank of Australia will cut rates by 25 basis points to 1.25 percent when it holds its monthly policy meeting.

“Neither we nor the market think the Bank will stop there,” ANZ analysts told clients Monday.

“Market pricing has the cash rate falling below 1% before the end of this year.”

In the 10 years since the global meltdown, the Reserve Bank of Australia has -- apart from a brief burst of optimism in 2010 -- steadily cut rates from a peak of 7.25%.

Any hope of returning rates to more “normal” pre-crisis levels have been quashed by the slow global recovery and domestic headwinds.

A downturn in the country’s hypercharged housing market, falling consumption and stalled wages have already pushed Australia into a per capita recession, with the output per person falling for two consecutive quarters.

The decision to cut rates will take the central bank further into uncharted territory.