RBA May Lower Rates Again Despite a Weak Australian Dollar
The Reserve Bank of Australia (RBA) has let interest rates remain the same amidst weak economic conditions. The mining industry remained weak following the job cuts and shutdown of Newcrest Mining's Brisbane offices.
The RBA is open to reduce interest rates further if the weak mining industry begins to put a strain on the entire economy of Australia. Based on a tame inflation outlook, the central bank of Australia said it still has leeway to lower interest rates.
Last month, the Reserve Bank reduced interest rates to 2.75 per cent despite the fact that mining companies had cut jobs and a slowdown in resource investment. The purpose of RBA has always been to ensure weaker economic sectors like housing and retail may be able to contain a possible rise in unemployment because of lack of mining investments.
RBA has difficulty in providing an outlook for the mining industry since it is difficult to predict conditions while the sector remains subdued.
Construction and consumer spending have been slow to respond to low rates. Others like tourism and manufacturing have been struggling with a stronger currency.
The Australian economy had a 2.5 per cent growth in first quarter of this year. Some economists have predicted facing the threat of recession if the slowdown in resource investment continues. Falling commodity prices have added to the economic gloom.
Some analysts have expressed concern on possible interest rate cuts. The recent drop of the Australian dollar may have come too late to prevent an economic slump. Official forecasts reveal resource investments to be at their peak for this year. It may be in a state of decline sooner than expected.
Most analysts expect another rate cut within the year as concerns are raised over China's economy. China is Australia's largest trading partner for coal and iron ore.
If the Australian dollar continues to decline further, it would help support the non-mining sectors according to the RBA. The Australian dollar remained high considering the drop in commodity prices.
A rebalancing of economic growth is possible if the exchange rate further depreciates. The Australian market suffered more losses after RBA's report was released.
