By Greg Peel

"The exchange rate has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time".

So bang, down we go, and at 2.75% the Australian economy is now facing a greater "emergency" than it did in the GFC.

Actually that's not quite true if we consider the Australian cash rate on a globally relative basis rather than an individually absolute basis. When the RBA declared an emergency and cut to 3% in April 2009, the Fed had only just rolled out QE1. Four years later we're now into "QE infinity", Britain's been hard at it for years, the ECB's ever ready to pull out the big guns, Switzerland has turned it into an art form and many other economies have sent in the troops as well. In 2009, the RBA's cash rate of 3.00% represented far less of an effective spread to other major economies' interest rates than it does now. Now there is a Currency War.

For the most part, May's policy statement is little changed from April, when the RBA went on watch in case another easing was required. New, however, is acknowledgement of Japan's entry into the Currency War (in not so many words) to join regular guests China and the US in the "who we worry about overseas" candidates.

Also new is a comment that "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". Another rate cut is not good news for savers, and asset values will only rise further, so perhaps the central bank is happy to encourage further interest-sensitive spending. Saving was good when the world faced financial crisis, but spending is needed to get the economy going again.

Of course we should have known the RBA would cut today because 70% of economists surveyed believed June was more likely.

Glenn Stevens' statements for many months have declared that Australia's subdued inflation outlook provides scope to ease further. "At today's meeting the Board decided to use some of that scope". Let's have another look at that opening quote:

"The exchange rate...has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time".

Last month the corresponding line was:

"The exchange rate, which has risen recently, remains higher than might have been expected, given the observed decline in export prices".

We have moved from "higher than expected" to "unusual". Unusual times require unusual measures.