The cut follows reductions at the Reserve Bank of Australia board's monthly meetings in June and July. Previously the bank had not shifted the rate in almost three years. Reserve Bank Governor Philip Lowe said the outlook for the global economy "remains reasonable," but the risks were tilted to the downside.
"The U.S.-China trade and technology disputes are affecting international trade flows and investment as businesses scale back spending plans because of the increased uncertainty," Lowe said in a statement.
But he said low unemployment and rising wages in most advanced economies are good signs. So are China's moves to support its economy and address risks in the financial system, Lowe said. "The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilization in some established housing markets and a brighter outlook for the resources sector should all support growth," Lowe said.
Lowe has previously said he wants to use rate cuts to get the economy growing fast enough to push the unemployment rate down to 4.5%. The jobless rate currently sits at 5.3%. Lowe expects that lower unemployment will spur sluggish wage growth and lift inflation to the bank's target range of 2% to 3%.
The annual inflation rate rose to 1.6% in the latest June quarter from 1.3% in the March quarter. Australia's economy slowed in the April-June quarter to a 0.5% annual growth, its slowest since 2009 in the aftermath of the global financial crisis. Growth for the year through June was 1.4%, equaling the lowest annual figure recorded since 2000.
Shane Oliver, chief economist at financial services company AMP, said he expected the bank would make another 0.25% rate cut at its next board meeting in November and another cut of the same size in early 2020.
Lowe wants the government to spend more to stimulate the economy. But the federal government is putting priority on delivering its first surplus budget in 12 years in this fiscal year. The government expects tax cuts delivered to most Australians from July 1 will further grow the economy.
The rate has not been increased since November 2010 when it rose 0.25% to 4.75%. The Australian economy is suffering from the end of a mining boom, largely to supply China, that carried the country through the global financial crisis without a recession. The country has not suffered a recession — defined as two consecutive quarters of economic contraction — since the June quarter of 1991.