RBA More Pressured for Further Rate Cuts in 2013

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By Vittorio Hernandez | January 4, 2013 10:14 AM EST

Even if the Reserve Bank of Australia (RBA) cut the overnight cash rate several times in 2012, bringing it down to a three-year low of 3 per cent, several sectors continue to clamor for more key lending rate reductions in 2013.

Those in favour of another round of rate cuts cited the contraction in December of Australia's manufacturing sector for the 10th consecutive month as the strong basis.

By further cutting the key lending rate, Australian Workers Union National Secretary Paul Howes said the move would help industry cope with the negative impact of a strong Australian currency.

Innes Willox, chief executive of the Australian Industry (Ai) Group, pointed out the local entrepreneurs are paying higher interest rates than their competitors overseas even if the Australian central bank had cut interest rates in the past 14 months by 175 basis points. He insisted there is still room for RBA to move.

On Wednesday Ai reported that the country's performance of manufacturing index was unchanged at 44.3 in December, which is below 50, an indicator of a contraction.

"The pressures are widespread across the industry and in December no manufacturing sub-sector recorded an expansion in activity . . . Forward orders continue to track weakly suggesting demand has not yet turned the corner," Mr Willox said in a statement.

To worsen the situation, the Australian currency spiked upward sharply on Wednesday after the U.S. passed a legislation to avert a fiscal cliff. As of 5 p.m., the Australian dollar was trading at US104.73 cents from US103.83 cents on Monday.

Economic experts share their thoughts on global market movements, including that of the U.S. dollar in this video.

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