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Reserve Bank hints at more cuts as the mining sector slows sharply

Stephen McMahon    Herald Sun   October 17, 2012

ANOTHER round of interest rate cuts are looming after the Reserve Bank warned the outlook for growth has weakened as the mining sector slows sharply.

The minutes from the RBA's October board meeting has left the door wide open for further rate cuts - starting on Melbourne Cup Day - as the mining investment boom is tipped to reach an earlier and lower peak than forecast.

Concerns about rising unemployment will also boost the case for further reductions in the cash rate, which has already fallen to its lowest level in three years. This month, the RBA cut the interest rate 25 points to 3.25 per cent, its fifth reduction in the past year.

But economists are tipping the official rate may drop to 2.5 per cent by March as the central bank moves to insulate the economy against the global slowdown.

"The RBA is obviously more worried about Australian growth than it was a few months ago and there is certainly a dovish tone to the minutes, which is consistent with a November cut of 25 points followed by two more in early 2013," AMP Capital Investors chief economist Shane Oliver said.

"Momentum is rapidly fading in the mining sector and the rest of the economy is still subdued."

Dr Oliver is tipping national growth will slip back from the RBA's forecast of 3-3.5 per cent growth next year to 2.5 per cent.

The central bank board minutes show it decided that a more accommodative stance is needed to provide additional stimulus, given that inflation was benign.

The RBA minutes also warned economic growth as a result of the global slowdown may be weaker than forecast.

However, the board was optimistic there were early signs of growth in some of the non-mining sectors of the economy.

The futures market is pricing in an 80 per cent chance of a rate cut next month.


Last modified onTuesday, 28 May 2013 09:23

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