Reserve Bank of Australia Counts on Fall in Currency to Cut Rates

Australia's central bank said it has room for further rates cut as it expects the local currency to fall again due to lower terms of trade.

"It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help to foster a rebalancing of growth in the economy," the Reserve Bank of Australia (RBA) said in the minutes of its 4 June meeting.

"The board also judged that the inflation outlook as currently assessed might provide some scope for further easing, should that be required to support demand."

The bank kept its cash rate unchanged in the 4 June meeting.

Over the last 20 months, the RBA has lowered the benchmark rate by 2 percentage points to 2.75%, as the country tries to rebalance its growth amid an economic divide between its regions. While the mining regions in the north and west are rapidly growing, the manufacturers in the east and west are struggling.

"Interest rates had declined further as a result of the Board's decision at the May meeting. The exchange rate had also depreciated noticeably, though it remained at a high level considering the decline in export prices that had taken place over the past year and a half," the bank said.

The Australian dollar held above US$1 from mid-June last year to 10 May for a notable stretch, making the country's imports more expensive.

The bank noted that international financial conditions remained very accommodative, and the below trend growth of the domestic economy over the past four quarters is likely to continue in the near term.

While investment in the mining sector is expected to remain at a high level for the next year, business conditions and investment in the non-mining sector remained subdued, according to the central bank.

Over the course of fiscal year 2013/2014, non-mining business investment is expected to grow modestly, according to the latest survey by the Australia Bureau of Statistics.