Australia’s central banker said yesterday he saw scope to cut interest rates further to ensure a durable economic upswing and cautioned about falling business investment and consumer spending.
Government data yesterday sought to remind investors about downside risks to the economy with exports falling 11 percent in April from a month earlier. The numbers dragged the Australian dollar down to US$0.8014 from around US$0.8040 beforehand.
As a result of a slump in exports, Australia suffered its first trade deficit since last July, just a day after first-quarter GDP showed the country dodged a recession, helped by its best trade performance in 48 years.
Exports tanked as the value of Australia’s key commodity exports tumbled, with shipments of coal, coke and briquettes down 15 percent and the metal ores and minerals component falling 10 percent, mainly due to lower prices.
“It is likely that activity has remained subdued in the June quarter,” Reserve Bank of Australia (RBA) Governor Glenn Stevens said.
“The rapid decline in business investment is almost certainly continuing. While consumer spending has held up quite well so far, it may be weaker over the next few months, as the one-off government payments pass and rising unemployment starts to weigh,” he said in a speech.
Australia grew at a faster-than-expected rate of 0.4 percent in the first three months of the year, after contracting 0.6 percent in the fourth quarter of last year. It is one of the few developed nations to have avoided a recession.
But policymakers are treading a careful line, trying not to overstate the prospects of recovery amid growing worries that rapidly declining business investments will lead to higher unemployment.
Earlier this week, the RBA kept interest rates unchanged at 3 percent and said with inflation trending lower, the door was open for more rate cuts. It has cut its cash rate by 4.25 percentage points in just seven months, taking it to a record low of 3 percent.
The Labor government has also weighed in over the same period, announcing record stimulus packages totaling more than A$52 billion (US$42.9 billion).
The combined impact of the large fiscal and monetary stimulus has played a role in cushioning Australia from the worst global downturn in decades, Stevens said.
He said monetary policy aimed to cut borrowing costs and support demand but the central bank would be careful not to encourage unsustainable debts.
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