Tuesday, 18 December 2012 13:04
The Reserve Bank of Australia cut the cash rate in December to support underperforming sectors of the economy, including housing construction and retail, ahead of the expected peak in the mining investment boom.
The minutes of the RBA's 4 December board meeting show the central bank was concerned industries away from the mining boom continued to struggle.
According to the minutes, the RBA board also believed the soft jobs market and slower wage growth meant a rate cut was unlikely to cause a blowout in inflation.
"At the meeting, the information on labour costs and softening labour market conditions suggested the inflation outlook still afforded the board some scope to provide additional support to demand," the RBA minutes said.
"Further confirmation that the peak in resource sector investment was near, and that the short-term outlook for non-resources investment remained subdued, indicating there was a case for the board to provide that support."
The RBA cut the cash rate to three per cent at its December board meeting, down from 3.25 per cent in November.
The central bank is attempting to ensure non-mining sectors of the economy pick up in 2013 to compensate for the slide in mining investment following the peak of the boom.
In the minutes, the RBA said lending rates were now below their medium term average, which was beginning to have a positive effect on the economy.
"Some of the expected effects were starting to be observed and further effects could be anticipated over time," the RBA said.
The board also noted the Australian dollar, currently trading around 105 US cents, remained high throughout November.
Meanwhile, the RBA said recent data suggested economic growth in China, Australia's biggest trading partner, had stabilised in recent months, which provided support for commodity prices.
It said the US economy continued to grow at a modest pace, although there were concerns about the pending 'fiscal cliff' of automatic tax hikes and spending cuts due to apply in early 2013 if US politicians cannot reach an agreement to avoid the measures.
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