WorldWideMarkets Community

Forex Trading, Market News & Technical Analysis

RBA's Lowe Says Low Rates, Weaker Currency to Help Revive Growth - (Bloomberg)

Posted by Chris Advincula on Oct 24, 2013 4:44:00 AM
lowe.10.24 resized 600

Australia’s record-low interest rates, weaker currency and improving sentiment should help revive growth in industries outside resources, central bank Deputy Governor Philip Lowe said.

“A pick-up in non-mining investment is an important part of the story in the return of the Australian economy to trend growth,” Lowe said in the text of a speech to be delivered in Melbourne today. “Our expectation is that this will take place, with growth in non-mining investment predicted to pick up to at least high single-digit rates within the next couple of years.”

Lowe cited a better outlook in the manufacturing and tourism industries after an 8 percent drop in the exchange rate against a basket of other currencies since April, which has aided firms that boosted their efficiency. “A further depreciation would be helpful in rebalancing growth in the economy,” the deputy governor said, referring to the local currency.

Lowe’s speech reflects increasing confidence the Reserve Bank of Australia’s two-year easing cycle and an election that ended the nation’s first hung parliament since World War II will allow the country to avoid a growth gap as a resource boom wanes. The RBA’s No. 2 official said he wouldn’t be surprised if mining investment relative to gross domestic product fell by 3 percentage points or more in coming years.

“A decline of this magnitude should be manageable, just as the earlier rise was manageable,” he told an investment conference hosted by the CFA Institute and CFA Societies Australia. “Other forms of spending will need to pick up.”

“One of these other forms of spending is residential construction, and the modest rise that is underway here is a welcome development,” Lowe said.

Currency Fluctuation

The economy’s transition from growth led by mining development in the north and west to industries like residential construction in the south and east was aided by a 12 percent decline in the Australian dollar in the second quarter. The currency has since rebounded as the Federal Reserve unexpectedly delayed tapering bond purchases.

“Whether we will see a further realignment remains unclear,” Lowe said. “But, from today’s perspective, a lower value of the Australian dollar would assist in lifting investment and activity in the sectors that have been constrained during the years of the mining investment boom.”

Residential Revival

Rising home prices and employment gains in the construction industry are heralding a revival in business confidence in Australia. The prospect of an economic recovery is prompting money markets to price in the end of the central bank’s easing cycle, which started in late 2011 and brought borrowing costs to an unprecedented low of 2.5 percent.

“This improvement is also apparent in our discussions with businesses,” Lowe said. “Just as a lack of confidence about the economy can be self-fulfilling, so too can be a recovery in confidence. If businesses are prepared to spend, jobs tend to get created, incomes tend to rise and people see opportunities where previously they saw none.”

The deputy governor also noted the “steady growth” in Australia’s population, projecting that at the current pace of growth, in five years’ time the population will be about 10 percent higher than around 22 million now.

“When businesses are deciding today whether to take advantage of these opportunities, they face a low cost of borrowing and finance is available for sound projects,” the deputy governor said.

“Of course, none of this is locked in,” he said. “But, together, a lower value of the Australian dollar, an improvement in business confidence and low interest rates provide the basis for our outlook of a gradual lift in the non-mining economy over the next couple of years.” 


Tools & Educational Resources

Forex 101LEARN MORE >>
Learn the basics of Forex and how to practice trading the markets.

GlossaryLEARN MORE >>
Confused by the language? Click here and search for key trading terms.

Browse our frequently asked questions and find your answers right away.

Access to the educational lessons, webinars and platform walkthroughs.


Get started with a FREE $10,000 Demo Account and experience the Forex Market RISK FREE!