"The Reserve Bank can comfortably keep interest rates at exceptionally low levels over the near term. Whichever way you cut it, inflation is well and truly in check."
-Savanth Sebastian, an economist at a unit of Commonwealth Bank of Australia
Australia is often called as a resource-rich economy, as huge part of the overall exports represents shipments of commodities, like ore, coal, petroleum, gas or non-monetary gold. The economy has benefited in the recent months from a commodity boom and strong investment into the mining sector. The most rapid pace of growth of commodity exports was registered between 1983 and 1992, when the exports climbed 7.0%. During the last decade, however, the pace stood at only 2.8%, as Australia faced increased competition from lower-cost producers in developing Asian economies. Moreover, demand for commodities was weaker in developed countries due to the downturns in the global business cycle. Last week's report showed that the price of Australia's export commodities plunged to a new four-year low last month. The gauge was 1.3% lower on a monthly basis, as gains in prices for base metal and rural commodities was outweighed by a sharp fall for iron ore, coal and gold. This can be another worrying sign for the RBA, which sounded more confident in the recent months.
The central bank is expected to leave the official cash rate unchanged at 2.50% this week. According to economists from the HSBC, the RBA can make the first rate hike as soon as in the fourth quarter of this year, as lifting momentum in the domestic economy is offsetting waning investment in the mining sector.
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