What were the main reasons behind the RBA rate decision today?

The RBA cut the cash rate by 25 basis points today. The Bank cited the need to stimulate the broader economy as the level of resource related investment starts to wane. Although the past rate cuts were still working through the economy, the RBA stated that the inflation environment afforded scope for further stimulus to be added.

Can the RBA afford to cut rates (further) to get the Australian economy going?

The RBA does have the capacity to further reduce rates, and the shape of the forthcoming Federal Budget will play a critical role in determining the extent, if any, and timing of further RBA moves.
What effect would a rate cut/further rate cuts have on the high Australian dollar?

Immediately following the RBA decision the AUD was about half a cent weaker. The AUD has shown increasingly over the past several months that interest rates are less of a factor than previously. A possible explanation is that the AUD is increasingly a reserve currency and as such is less driven by interest rate differentials.
What is the RBA's view on the Australian economy, and its outlook?

The Bank is becoming increasingly concerned about successfully negotiating the transition from a resources investment led economy to more broad based growth. Managing this transition was always going to be problematic, the RBA has taken out insurance to assist in this smooth transition.

The Bank is attempting to stimulate other sectors of the economy, such to maintain the momentum in the economy as the sources of growth transition.
What are the main concerns for the RBA at the moment?

The Bank is concerned that the labour market could deteriorate and that the lead time for other sectors of the economy to pick up is extended. Hence they have taken advantage of the inflation outlook to reduce the cash rate. Importantly, the Bank noted that it was appropriate to use some of the scope afforded by the inflation outlook. This suggests that they may consider further rate cuts in the period ahead.

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