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Australian Central Bank may cut rates soon

Tuesday 19th August 2008

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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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