Australian Central Bank may cut rates soon

Tuesday 19th August 2008

The Reserve Bank of Australia may cut interest rates soon to ensure growth in that economy isn't choked off by too-expensive credit.

"Financial conditions were clearly quite tight and effectively getting tighter as a result of ongoing pressure on lenders' cost of funds," according to minutes of the bank's August 5 meeting. The bank kept its cash rate unchanged at 7.25% at the meeting.

"Less restrictive conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase," the bank's board said, according to the minutes.

The central bank of Australia tries to keep inflation within a 2% to 3% band on average. The bank expects inflation to accelerate to 5% in the fourth quarter, before abating over the next two years. The Reserve Bank of New Zealand, which has already begun easing monetary conditions, expects inflation to peak at 5% in the third quarter.

Australia is New Zealand's largest export market, with shipments rising 27% to NZ$9.2 billion in the 12 months ended June 30. That accounted for 23% of New Zealand's total exports.

By Jonathan Underhill

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