Australia's central bank cut its key interest rate by 25 basis points on Tuesday to a record low of 2.75 percent to boost economic growth, in a move that surprised many analysts and knocked the Aussie dollar to its lowest level in just over a month.
Most economists had expected the central bank to leave interest rates steady given signs of a pick-up in growth.
However, softer-than-expected inflation data last month and signs of weakness in China's economy, Australia's biggest trading partner, had sparked some talk in markets of a rate cut this month.
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"I was a bit surprised by the rate decision and the market was about 50-50 on the chances of a cut," said Matthew Circosta, an economist at Moody's Analytics in Sydney. "But they [the central bank] have said that there was a bias towards further easing."
The Reserve Bank of Australia (RBA) has now slashed interest rates 200 basis points since late 2011 to boost the economy. Tuesday's rate cut was the first move since the central bank eased monetary policy in December.
In a statement, the Australian central bank said that a peak in resource investment was likely to occur this year and that there was scope for other areas of the economy to strengthen.
This view probably explains why the central bank has eased monetary policy again, to bolster the non-mining sectors of the economy, analysts said.
"The RBA says it wants to encourage sustainable growth; it wants to boost the non-mining sectors of the economy as mining investment peaks," Circosta added.
Australia's benchmark stock index trimmed its losses following the rate cut to trade at around 5,154 points, not too far away from a 4-1/2 year high touched on Monday.