“The Reserve Bank of Australia may need to cut its benchmark interest rate further as the local dollar’s resilience impedes economic growth, the Organization for Economic Cooperation and Development said.
Growth will slow to 3 percent in 2013 from 3.7 percent this year, the OECD said in a survey released in Paris today. The OECD urged the government to abandon efforts to prop up industries such as carmakers that are struggling to adjust to intensified competition from abroad.
Australia’s central bank lowered borrowing costs by 1.75 percentage points to 3 percent in the past 14 months as the local currency’s sustained strength contains inflation and a mining investment boom crests. The local dollar has risen about 10 percent since this year’s low on June 1 as offshore investors sought a safe haven, even as Australia’s key commodity prices eased in the past year.
“The conduct of monetary policy needs to cope with the conflicting pressures on the currency,” the OECD said in the report on Australia. “A lower sensitivity of the currency to falling commodity prices might require stronger cuts in the cash rate to support demand.”
The OECD backed the government’s drive to return its budget to surplus, citing a good backdrop of low unemployment, a growth outlook “close to potential” and still high terms of trade, referring to a gauge of export prices relative to import prices.”
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