Wed, Aug 19, 2015 - Page 15 News List

Weaker currency aiding industry shift: RBA

POST-MINING BOOM?Sentiment has turned more positive, but hurdles remain, such as businesses’ plan to cut investments and weak wage growth, the central bank said


The Reserve Bank of Australia (RBA) said that a weakening currency is assisting a transition away from mining investment, while adding that accommodative policy remains appropriate to support growth.

“Economic activity had generally been more positive over recent months,” the Australian central bank said yesterday in minutes of its Aug. 4 meeting, when interest rates were left at a record-low 2 percent. “The further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports.”

Policymakers are gaining a degree of confidence that post-mining boom growth is gaining traction, citing recent stronger data including hiring. The RBA is also relying on its US counterpart to raise rates later this year, which could spur a further reduction in a local currency that has already dropped 8 percent in the past three months.

“There was likely to be a sizable market impact notwithstanding how well telegraphed the change in policy had been,” the RBA said of an expected US Federal Reserve move. “It was likely that financial market volatility would increase and the US dollar could appreciate further, including against the Australian dollar.”

The RBA was a little more positive on key trading partner China, saying risks to growth in the world’s second-largest economy had “receded somewhat.”

Still, the central bank said the Beijing government’s “policy response to the recent volatility in Chinese equity markets had clouded the medium-term economic outlook.”

RBA Governor Glenn Stevens and his board have held rates for the past three months and signaled reluctance to cut further as house prices inflate in Sydney and Melbourne. The bank said recent responses by lenders to measures imposed by the banking regulator that targeted property investors “would be expected to reduce the risks relating to the housing market.”

Even so, Stevens is still waiting for an improvement in business confidence as a precursor to higher investment by firms. Sentiment has been more positive, aided by tax cuts in the May budget, yet hurdles remain. Businesses plan to cut investment in the next 12 months by the most on record, wage growth is at levels unseen since the early 1990s recession and the economy has grown below its 3.3 percent average for six of the past seven years.

“There remained considerable uncertainty around the timing and strength of the recovery in non-mining business investment,” according to the minutes. “The period of significant structural change for the Australian economy associated with the winding down of the mining investment boom would continue for some time.”

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