The Reserve Bank of Australia has reduced its official cash rate to 2.75%, a quarter of a percentage point above the New Zealand rate of 2.5%.
Most New Zealand economists expect the New Zealand central bank to lift its OCR to 2.75% in March next year, which could mean both Australia and New Zealand have the same interest rates.
Lowering the rate in Australia should take some pressure off the currency, although 2.75% is still a high rate compared with near zero rates in Europe, the United Kingdom, the United States and Japan.
The Australian dollar has been consistently above $US1.04 for about a year.
RBA governor Glenn Stevens said that over recent meetings, the bank board had noted that interest rates had already been reduced substantially, with borrowing rates approaching previous lows. The effects of that were continuing to emerge.
''Savers have been changing their portfolios towards assets with higher expected returns, asset values have risen and some interest-sensitive areas of spending have increased.''
The exchange rate, on the other hand, had been little changed at a historically high level over the past 18 months. That was unusual, given the decline in export prices and interest rates during that time. Moreover, the demand for credit remained relatively subdued, he said.
The board had judged that a further cut in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target of between 2% and 3%. At present, Australian inflation is 2.5%.
