Australian growth to be hit by mining slowdown, says RBA

Australia's central bank says it is hard to gauge how much low interest rates will offset a drop in mining investment and tighter fiscal policy, adding that the currency is providing less assistance to rebalancing growth.

"Those uncertainties were likely to take some time to resolve," the Reserve Bank of Australia said in minutes of its June 3 meeting released yesterday. "The expectation of substantial falls in mining investment, below-average growth of public demand and non-mining investment remaining subdued for a time implied that the pace of growth was likely to be a little below trend over the rest of this year and into next."

At the meeting, the central bank decided to keep the benchmark cash rate unchanged at a record-low 2.5 per cent.

Markets and most economists predict the RBA will leave borrowing costs unchanged for the rest of this year to spur hiring and avoid a growth gap emerging as mining firms plan fewer projects. The federal government last month announced a fiscal tightening strategy that may drag on growth and consumer sentiment and reinforce the likelihood of rates remaining on hold.

The central bank repeated that the current accommodative policy stance was likely to be appropriate for some time.

The Australian dollar has risen 7.3 per cent since the RBA adopted a neutral bias in February, erasing part of its 14 per cent drop last year.