Finance advice

Rate cut signals end of mining boom

By Reporter

The RBA’s 25 basis point cut yesterday signals an approaching end to the mining boom, according to a number of commentators.

Governor Glenn Stevens, in the announcement yesterday, said that part of the reason for the cut was related to an expected downturn in the resources sector.

“In Australia, most indicators available for this meeting suggest that growth has been running close to trend over the past year, led by very large increases in capital spending in the resources sector, while some other sectors have experienced weaker conditions,” said Mr Stevens.

“Looking ahead, recent data confirm that the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen.”

This was not a surprise to Westpac, whose bulletin predicted the cut last month.

“The dominant theme likely to push the board into deciding to cut will be the perceived need to stimulate domestic demand to ensure that the non-mining sectors of the economy go some way to “filling the gap” in Australia’s growth profile, which will appear as the mining investment boom slows down,” it noted.

Further rate cuts are still likely to be seen, said RP Data’s Cameron Kusher.

“Going forward, further rate cuts are expected, which are likely to provide another round of stimulus to the housing market albeit likely to lead to only moderate levels of improvement rather than the rapid rebound experienced following interest rate cuts in 2008 and early 2009,” Mr Kusher said.

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Rate cut signals end of mining boom
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