Australia central bank cuts rates to record-matching lows

Dec 04 2012, 11:39 IST
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The Reserve Bank of Australia (RBA) cut its main cash rate to 3.0% following its monthly policy meeting.  (Reuters) The Reserve Bank of Australia (RBA) cut its main cash rate to 3.0% following its monthly policy meeting. (Reuters)
SummaryThe Reserve Bank of Australia (RBA) cut its main cash rate to 3.0% following its monthly policy meeting.

as Rio Tinto and BHP Billiton to announce a slowdown in future expansion plans and job cuts.

The Asian giant is Australia's biggest trade market and the single largest buyer of iron ore. It helped Australia avoid recession during the global crisis by unveiling a 4 trillion yuan ($635 billion) stimulus package that led to a wave of infrastructure development and demand for resources.

Australia's mining investment in the year to June 2013 is expected to total A$109 billion, or nearly 8 percent of GDP, way above the long-run average of 2 percent.

Even after Tuesday's cut, Australian rates are still among the highest in the developed world.

With rates near zero in the United States, Japan and Britain, those countries have taken ever more exotic stimulus steps including buying massive amounts of government debt.

And, as yet, lower rates have had only a limited impact on consumers, with retail sales disappointingly flat in October and demand growth for credit the lowest in decades. The housing market has also been less than stellar. The Statistics Bureau on Tuesday reported approvals to build new homes slid 7.6 percent in October, so reversing much of September's hefty 9.5 percent increase.

The impact of lower export prices was clear in Australia's trade deficit, which more than doubled in the third quarter. As a result, the current account deficit widened by a fifth to A$14.9 billion ($15.5 billion), according to figures from the Australian Bureau of Statistics.

Fortunately, export volumes managed to outpace imports and so add 0.1 percentage point to economic growth in the quarter. However, that was more than offset by government penny-pinching as the ruling Labor Party struggles to return the budget to surplus in 2013, years before most other rich nations.

Data out Tuesday showed government spending fell by 2.0 percent in the third quarter, largely due to a big drop in defence investment. That was a steeper fall than many analysts had expected and could take around half a percentage point from economic growth in the quarter.

It was no surprise then that Treasurer Wayne Swan warmly welcomed the RBA's largesse.

"Today's rate cut is the early Christmas present that hard-working Aussies deserve," he told reporters. "It comes at a time where unemployment is low, and economic growth is in much better shape than many other developed economies." Figures for gross domestic product (GDP) are due

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