Weekly Finance Report – RBA cuts rates again

Last week the RBA cut the official cash rate for the second time this year, but dampened expectations for further easing. The cut of 0.25 per cent, which extends the easing cycle that began in November 2011, is intended to help support growth in the economy. While the pace of borrowing remains subdued, there are recent indications of an increase in demand for new household loans. In welcome news, lending for construction of new dwellings rose in June, consistent with expectations that construction will be a key source of economic growth as mining investment plateaus. Employment was down in July, yet the unemployment rate remained steady, helped by a lower participation rate. Although the data was in line with expectations, it shows that the labour market remains vulnerable.

In its Statement on Monetary Policy, the RBA reduced its outlook for growth for 2013 to 2.25 per cent, down from its earlier forecast of 2.5 per cent. The RBA estimates that a 10 per cent depreciation of the Australian dollar could stimulate growth by 0.5 to 1 per cent of GDP over two years or so. Economists are predicting the dollar to settle in the range of 80 to 85 US cents.