RBA open to rate cut but confidence needed

05.RBA open to rate cut but confidence needed

Perth

(Australian Associated Press)

The central bank has left the door open for further rate cuts but believes business needs a shot of confidence rather than easier credit.

Reserve Bank boss Glenn Stevens says Australian businesses are more concerned with the broader economic picture and unlikely to change their investment plans in response to even lower interest rates.

“I don’t think that non-mining business investment or any form of business investment is particularly responsive to interest rates,” he told a business breakfast in Perth on Wednesday.

“If and when that pick up in capital spending outside of mining occurs it will be because businesses in those sectors feel more confident in their future sales and the general state of the economy.

“It won’t be because of some tweak to the cost and availability of credit.”

Capital expenditure is now at a four-and-a-half year low, mostly because of the downturn in mining and resources investment.

Mr Stevens repeated his expectation that the economy will enjoy moderate growth amid weak inflation and that there is scope for the 2.0 per cent cash rate to fall further.

He said the RBA had avoided a slide into deflation since the mining investment boom peaked, after earlier containing the inflationary pressures it had generated.

“I remain of the view that we’ll come through this okay,” he said.

“Interest rates are as low as any of us here have ever seen in our life, but if needed there is more that could be done on that front.”

His comments came as new data showed Australia’s economy grew by a better-than-expected 0.9 per cent in the September quarter, and by 2.5 per cent on an annual basis.

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