3 Apr 2013

RBA signals possible rate cut this year

7:56 am on 3 April 2013

The Reserve Bank of Australia left the cash rate at 3% cent for another month at its board meeting, as had been widely expected.

The RBA again indicated it could cut the cash rate later in the year to support domestic demand, given a benign inflation outlook.

"The peak in resource investment is drawing to a close," governor Glenn Stevens said in a statement.

"While the near-term outlook for investment outside of the resources sector is relatively subdued, a modest increase is likely to begin over the next year."

Australian Chamber of Commerce and Industry (ACCI) chief economist Greg Evans said any suggestion the RBA had finished cutting rates was premature given what was happening in the mainstream economy.

"Clearly the Reserve Bank wants to see this transition from the stronger parts of the economy to the weaker parts, and that's far from locked in," Mr Evans told reporters in Canberra.

"Any indication they have given about strength in the mainstream economy seem to be based more on hope than reality."

ACCI's latest business survey found lower interest rates and a more stable international economy were beginning to benefit businesses.

But Mr Evans said businesses remained reluctant to invest, employ and borrow. "We still think a rate reduction is justified between now and June," he said.

Manufacturing remains in the doldrums. The Australian Industry Group's performance of manufacturing index fell 1.2 index points in March to 44.4 points, below the key 50 level.

Federal Treasurer Wayne Swan said lower interest rates seen since 2011 were flowing through the economy and benefiting both families and business.

"Today's low interest rates will continue to support sectors under pressure from global headwinds, the high dollar and a cautious consumer," he said in a statement.

Opposition industry spokeswoman Sophie Mirabella said this was the thirteenth consecutive month of decline in manufacturing activity.

"The job-destroying policies of this divided and dysfunctional Gillard Labor government are continuing to take a heavy toll on the Australian manufacturing sector," she said.