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RBA has room to cut rates
RBA has room to cut rates

Australia's central bank says it has room to cut interest rates further to support the national economy in the face of falling commodity prices, the high Australian dollar and weaker global growth.

Minutes of the Reserve Bank of Australia's September 4 meeting, released today, show the central bank decided to keep the cash rate on hold at 3.5 per cent despite concerns about falling iron ore and coal prices and the high value of the Australian dollar.

However, it said the current inflation outlook, which is expected to remain within the RBA's target range of 2 to 3 per cent through to 2013, meant it had room to cut rates again if necessary.

"The current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth," the RBA said.

The central bank said iron ore spot prices had fallen by 35 per cent since mid-June while coking coal prices were down 25 per cent, partly as a result of weakness in China's steel market.

It also noted the falls in prices and a weaker outlook for the global economic growth had not had a substantial impact on the value of the Australian dollar, indicating the currency may be somewhat overvalued and may be weighing more heavily on the domestic economy than previously expected.

However, it said, the current rate of economic growth and the inflation outlook meant there was no need to cut rates at present.

"The board judged that, with inflation expected to be consistent with the target and growth close to trend ... the stance on monetary policy remained appropriate," the RBA said in the minutes.

It also said the introduction of the federal government's carbon tax on July 1 had not yet had a significant effect on prices and there was no evidence it would have an impact on the medium-term inflation outlook.

The RBA in June cut the official interest rate by 25 basis points, after lowering it by 50 basis points in May.