Reserve Bank drops cash rate to 3%

The Reserve Bank yesterday moved to cut the country’s cash rate to 3 per cent in an effort to stimulate the non mining sectors of the economy before Christmas.

Australia’s two speed economy has seen manufacturing, tourism and retail lag well behind the resources sector causing much concern for economists, smartcompany.com.au reported.

Similarly, RBA governor Glenn Stevens in his December statement predicts public spending to continue to be constrained and indicated the RBA’s concern of a slowdown in the mining investment boom.

Steven’s added that other sectors of the economy will need to grow to keep the economy on track.

“In Australia, most indicators available for this meeting suggest that growth has been running close to trend over the past year, led by very large increases in capital spending in the resources sector, while some other sectors have experienced weaker conditions.

“Looking ahead, recent data confirm that the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen,” Stevens said.

The RBA also used yesterday’s announcement to highlight its expectations for next year, saying global growth may be “a little below average for a time”.

Mining investment is predicted to peak in 2014, so the need to stimulate non-mining sectors does not come as much of a surprise, in fact we should expect further rate cuts next year.

Image: Macro Business

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