Australia's central bank cuts main interest rate to 3%

BHP Billiton Western Australia iron ore mine A resource boom has been the main driver of Australia's economy

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Australia's central bank has cut its benchmark interest rate by 25 basis points to 3%, as it looks to counter a slowdown in its mining sector.

It has also been struggling with a stubbornly strong Australian dollar. A rate cut usually weakens a currency.

The rate cut is the second since October and came after the Reserve Bank of Australia's monthly policy meeting.

Australia's cost of borrowing is now at the same level it was during the global financial crisis of 2009.

The Australian dollar was little changed on the news, while the main Sydney stock exchange was down slightly.

Mining slowdown

Analysts said that as the mining boom starts to run out of steam, the other sectors of the economy will have to take over and drive growth.

"The urgency to actually find a replacement for mining investment has become quite acute," said Brian Redican of Macquarie Bank.

Mr Redican said more action will be required from the Reserve Bank of Australia.

"In 2013 there will be further aggressive rate cuts, although there is nothing in this statement that suggests that the Reserve Bank is thinking along those lines."

Demand for Australian commodities has meant that its economy has remained buoyant during the recent global slowdown whilst Europe and the US have slowed down.

However, that demand mainly from China is beginning to taper off as the slowdown starts to hurt Asia as well.

Prices for Australia's commodities have fallen as a result and the value of its exports has been reduced.

Dollar woes

The strength of the Australian dollar is also causing problems for the economy hurting sectors such as tourism and manufacturing.

In a statement on Tuesday, central bank governor, Glen Stevens, said the dollar remains "higher than might have been expected" given lower export prices and a weaker global outlook.

The Australian dollar is above parity with the US dollar.

Businesses have been suffering as a result with the unemployment rate at a two-and-a-half year high.

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