4 Nov 2012

Australia's RBA tipped to cut rates again

1:48 pm on 4 November 2012

The Reserve Bank of Australia is expected to cut the cash rate again after its board meets on Tuesday, as a mining slowdown adds to Australia's economic challenges.

Twelve of 15 economists surveyed by AAP said the central bank will cut the cash rate by a quarter of a percentage point to 3% on Tuesday.

The struggling global economy and the sluggish performance of non-mining sectors of the domestic economy have driven previous rate cuts.

However AMP chief economist Shane Oliver said the recent fall in commodity prices and the slowdown in the once-booming mining sector had also become a factor.

"Mining will still stay high, but some time next year mining investment will peak as a share of GDP (gross domestic product).

"Its contribution to GDP growth will steadily decline.

"That will potentially leave a bit of a hole in the economy that will need to be filled by non-mining parts of the economy, hence the need for lower interest rates," Dr Oliver said.

The most recent rate cut was in October, by a quarter of a percentage point to 3.25%, in response to a weakening outlook for global economic growth.

That was the fifth interest rate cut in the past 12 months.

RBA governor Glenn Stevens said, in a statement accompanying the 2 October rate cut, that as long as inflation was expected stay within the central bank's target range of 2-3% it could afford to respond to the weaker global growth outlook.