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RBA stands ready to cut rates

RBA stands ready to cut rates

Bank Victims   Adam Sanders   June 18, 2013

With the Australian Dollar falling The Reserve Bank of Australia has hinted that it is prepared to cut rates further.

The bank last cut the official cash rate at its May meeting. It decided to keep rates on hold at its June meeting earlier this month, largely because of the falling Australian dollar.

Between the May and June meetings, the Australian dollar fell 7 per cent against a surging US dollar but the RBA considers it to still be too high.

The high Australian dollar, which has been above 100 US cents for most of the past year, has been a drag on much of the non-mining sectors of the Australian economy.

"The exchange rate had depreciated noticeably, though it remained at a high level considering the decline in export prices that had taken place over the past year and a half," the RBA minutes released on today said.

"It was possible that the exchange rate would depreciate further over time, as the terms of trade declined, which would help foster a rebalancing of growth in the economy."

The mining investment boom is expected to plateau sometime in the next 12 months and it is hoped that growth in the other parts of the economy will pick up pace to compensate, a theory which is often called rebalancing the economy.

The RBA says business conditions for the non-mining sectors are still subdued but there are some hopeful signs with non-mining investment enjoying moderate growth and borrowing in the household sector starting to pick up pace.

The central bank says past interest rate cuts were starting to have an effect on the housing sector.

"Building approvals for both higher-density and detached dwellings had increased over recent months," the RBA said

"Also, loan approvals had grown more strongly in recent months, including for new housing, and auction clearance rates were well above average in Sydney and had picked up to be a bit above average in Melbourne."
However, the RBA board noted that economic growth in Australia is still a little below trend pace but said it had scope to give the economy a boost with more rate cuts if required.

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Last modified onWednesday, 19 June 2013 02:09

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