Australia’s central bank yesterday cut the official interest rate to a record low of 3 percent, a level not seen since the financial crisis as China’s slowdown squeezes the mining industry.
Reserve Bank of Australia Governor Glenn Stevens said ongoing troubles in Europe and the US were overshadowing global growth prospects, with risks seen to the downside and local spending “relatively subdued” as a result.
“The board judged at today’s meeting that a further easing in the stance of monetary policy was appropriate now,” said Stevens following the bank’s monthly rates meeting.
“This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time,” he said.
Stevens said Chinese growth looked to have stabilized, but Asia was lagging as a result of its slowdown, with prices for Australia’s key commodities “significantly lower,” reducing the value of its exports by about 15 percent.
Recent data confirmed that the “peak in investment is approaching” for the key mining sector, bringing “new scope” for other areas of the economy to grow.
However, Stevens said consumer spending was unlikely to return to the boom times seen some years ago, and analysts warned that further stimulus would be needed to smooth the transition from a mining dominated economy.
“Even lower rates will be needed to boost the non-mining sectors of the economy as the mining boom fades at a time when the Australian dollar remains strong and fiscal cutbacks are intensifying,” AMP Capital chief economist Shane Oliver said.
Australian Treasurer Wayne Swan sought to play down as a “scare campaign” yesterday suggestions that the economy was again in strife, emphasizing the bank’s assessment that Australia was growing at trend pace and that global conditions were far less dire.
“Let’s go back to the global financial crisis — the global economy fell off a cliff, global growth was minus 0.6 percent back then. Global growth is just below trend right now,” Swan told reporters.
Swan said that he “wouldn’t be surprised if we saw a slight moderation in growth” in the third quarter of this year when official GDP data is published today.
“But when you’ve got low unemployment, when you’ve got contained inflation, when you’ve got a strong investment pipeline and when you’ve got strong public finances the glass is more than half full,” he said.
Stevens said the “available information suggests that the near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued.”
The labor market was softening and unemployment was “edging higher,” he said, adding that the Australian dollar still remains “higher than might have been expected” in the circumstances and was squeezing non-mining industries.