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RBA Repeats Rate-Cut Scope as Past Reductions Spur Demand


The Reserve Bank of Australia reiterated that the inflation outlook gives it room to reduce borrowing costs to a record even as earlier cuts boost demand. “Interest-sensitive parts of the economy were responding to the historically low levels of lending rates and it remained likely that this had further to run,” minutes of the April 2 meeting released in Sydney today showed. “At the same time, the factors weighing on the economy — including the high exchange rate , the waning growth of mining investment, and fiscal consolidation — were likely to persist. The key issues were what the balance of these factors would turn out to be.”

Governor Glenn Stevens and his board held the cash rate at 3 percent after reducing borrowing costs in six steps for a total of 1.75 percentage points in the 14 months through December. Policy makers are trying to buoy industries outside of mining and are grappling with a currency that has reached its highest level on a trade-weighted basis since early 1985. “Members again noted that the exchange rate remained high despite the terms of trade having declined significantly since peaking about 18 months earlier,” the minutes showed, referring to a measure of export prices relative to import prices. The Australian dollar weakened to $1.0328 as of 11:37 a.m. in Sydney, from $1.0338 before the announcement, paring its advance from $1.0313 yesterday in New York . Stevens is aiming to rebalance a two-speed economy, where mining regions in the north and west thrive while manufacturers, builders and retailers in the south and east struggle. He has said the loosening of monetary policy is designed to offset some of the drag on growth from the currency and spur industries including construction. Stronger Housing “Stronger conditions in the established housing market more generally […]



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