AUSTRALIA’S central bank lowered the cost of borrowing for the first time in three years today, hoping to extend a record 28-year run without a recession amid stiffening headwinds.

The Reserve Bank of Australia cut rates by 25 basis points to a historic low of 1.25%, as the pace of growth slowed to levels not seen since the global financial crisis.

Australia dodged much of the global economic tumult of the past two decades as Beijing lapped up its vast iron ore, coal and other mineral deposits.

But now, rising unemployment, low wages, a housing slump and below-target inflation are stoking fears about the health of the economy Down Under.

“The board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” said governor Philip Lowe in a statement.

The rate cut had been expected, and analysts believe that more measures to juice the economy could be on the way.

Lowe said the bank will “continue to monitor developments in the labour market closely, and adjust monetary policy to support sustainable growth in the economy”.

Many predicted that the cash rate will fall below 1% this year, and the central bank could even look at buying up securities.

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 has been quashed by the slow global recovery, trade disputes between China and the US, and domestic challenges.

Lowe said while the global outlook appears “reasonable”, the “downside risks stemming from the trade disputes have increased”.

Earlier today, there was news of faltering retail sales and the country’s main telecoms firm cutting 10,000 contractors.

A downturn in the country’s hyper-charged 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.

Lowe himself has warned that “low-for-long” interest rates could pose problems for financial stability, with banks and other firms overvaluing risky assets.

But there is already talk about the bank going a step further to improve liquidity by buying up securities, known as quantitative easing. – AFP, June 4, 2019.