FED:Scope for interest rate cut, Gillard says

AAP General News (Australia)
02-01-2012
FED:Scope for interest rate cut, Gillard says

By Colin Brinsden, AAP Economics Correspondent

CANBERRA, Feb 1 AAP - Prime Minister Julia Gillard believes the Reserve Bank of Australia
(RBA) has scope to cut interest rates, given her government's pledge to maintain fiscal
discipline.

Delivering a speech on Wednesday, Ms Gillard gave an unqualified commitment to bringing
down a budget surplus in 2012/13.

"Putting the budget into surplus when domestic economic growth is around trend means
that we are well positioned to deal with further global financial and economic uncertainty
and crises if that should occur," she told an Australia-Israel Chamber of Commerce lunch
in Melbourne.

"And it increases the scope for our independent Reserve Bank to ease monetary policy
when conditions require."

But Opposition Leader Tony Abbott said the prime minister's speech was nothing but
"cliches and platitudes".

"Nothing about reducing debt, nothing about taking the cost of living pressure off
families," he told a meeting of the coalition policy approval committee in Canberra.

Ms Gillard was briefed ahead of the speech by RBA governor Glenn Stevens, who will
chair the central bank's first board meeting of the year on Tuesday.

Financial markets are betting the official cash rate will be cut by a further 25 basis
points to 4.0 per cent at the meeting, following on from the reductions in November and
December last year.

New housing data released on Wednesday supported such action, with established house
prices in capital cities falling by a further 1.0 per cent in the December quarter to
be 4.8 per cent lower than a year earlier, according to the Australian Bureau of Statistics.

This was the weakest annual performance since the depths of the global financial crisis.

At the same time, the Housing Industry Association said new home sales fell by 4.9
per cent, with detached house sales tumbling 7.7 per cent.

However, a report by Deloitte Access Economics shows major investment projects appear
undaunted by global uncertainty.

"The value of projects underway provides a healthy buffer against a potential global
slowdown in 2012," Deloitte Access Economics partner David Rumbens said.

The total value of projects grew by a further 2.1 per cent in the quarter, compared
with the previous three months, to a staggering $912.7 billion.

Projects have increased 17.5 per cent over the year.

Of these, definite projects reached a value of $415.4 billion, a 43 per cent rise over the year.

"This is yet another example of our economy's strong fundamentals and shows why Australians
can be confident in our country's outlook," Treasurer Wayne Swan said.

Ms Gillard said such fundamentals were in stark contrast to the "serious and complex"

problems of Europe.

"We can expect daily choppiness and immediate reactions to overnight news to continue
to colour the mood of market commentators and participants ... for as long as it takes
for Europe to get its house in order," she said.

But there had been a global drive to hold Australian dollar-denominated investments
and a record surge by investors buying Australian government bonds, Ms Gillard said, while
the currency was being used by investors as a substitute for betting directly on growth
in the region, especially in China.

"Add the relative woes of European economies - touching even traditional currency strongholds
like Switzerland - and for the first time in history Australia is being referred to as
something of a global `safe haven'," she said.

"What is certain from all this is our dollar is likely to remain relatively high for
years to come."

AAP cb/klm/tab/wjf

KEYWORD: ECONOMY WRAP (WITH PICS)

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