Is there a case for the RBA to cut rates before Christmas?

Tuesday, 2 December 2014  Media Alerts

 "There might be a case for the RBA to cut rates today," said the UNSW Business School's Richard Holden, who has been analysing the current crop of economic data on falling resource prices. "However that case isn't totally clear cut."

The Australian dollar has fallen to fresh lows following comments by the Reserve Bank at the end of last week. The RBA said it could cut rates further, and amid concerns over slowing growth in China.

"That slowdown in China is certainly impacting our resource prices," said Professor Richard Holden, an ARC Future Fellow. "China imports a lot of Australian coal and iron ore, and a slowdown in China could impact on mines throughout Australia. And that would have a material knock on effect for the rest of the economy."

Last year, Australia sold $9 billion worth of coal to China, but China is now imposing a 6 per cent tariff on imported Australian coal. Australian coal exporters are also being hit from changes to China's coal import rules which limit the use of imported coal with more than 16 per cent ash and 3 per cent sulphur from 2015.

Oil prices have also sharply fallen after OPEC ruled out a price cut. "If they carry on falling to below $60 a barrel that could give a nice boost to the world economy. Indeed a 40% fall in the oil price - so long as it isn't a short term blip - would have a solid one-time large effect on the level of global output, by as much as 1 percent as a one-off. The oil price is now 40% below its peak in June, and at five year lows, which is very welcome" said the UNSW Business School's Richard Holden.

"The US economy is still quite weak and fragile, and it is likely that the Fed will keep rates at around zero for an extended period, despite scaling back quantitative easing."

For further comment call Richard Holden on 02 9385 4700, 0409 446 296 or email Richard.holden@unsw.edu.au

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www.unsw.edu.au    Last updated: 2/12/14    CRICOS Code: 00098G

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