The Reserve Bank believes Australia’s mining investment boom will last longer than it had thought, ending in something more like a plateau than a peak. But it thinks the outlook is highly uncertain and it is on standby to cut interest rates again as soon as is needed.
Last week’s ABS capital expenditure survey played an important role at Tuesday’s Melbourne board meeting, persuading members the mining investment boom was not as weak as had been thought and suggesting non-mining investment might pick up in the second half of the year.
But with so few mining companies involved in the big decisions and with much that could go wrong, the Bank isn’t placing much store on investment forecasts.
In a statement released the meeting Governor Glenn Stevens said said the four rate cuts delivered last year were “starting to have some of the desired effects”.
Consumer spending was growing moderately, and homebuilding and house prices were climbing.
Holding the economy back were constrained government spending and an exchange rate “higher than might have been expected”.
While low inflation gave the Bank “scope to ease policy further should that be necessary” there was not yet a big enough threat to economic growth to justify a further move.
The Bank expects its earlier cuts to continue to stimulate the economy for some months.
In today's Sydney Morning Herald and Age
. February. Reserve Watch: Why it's on standby to cut again
. December: The big four can pass it on, and if we have to we'll cut again
. November: No cut. It's today's favourite