The Australian central bank held interests rates steady at 3.5% on Tuesday, rejecting demands to loosen monetary policy in the face of a slowdown in the all important mining sector. Global demand for commodities such as iron ore has fallen and resulted in lower prices which has increased the likelihood that the Australian economy which is heavily dependent on commodity exports will end up slowing down.
Australian banking major Commonwealth Bank of Australia has once again posted record full year profits despite falling business confidence and a slowdown in revenue growth.
Whilst growth forecasts for the Australian economy during 2012 are much more robust than previously predicted, the Australian central bank is warning that the European sovereign debt crisis remains a significant headwind.
Some of the biggest companies in the world are withdrawing their cash from European lenders and developing a strategy in the event the Euro is forced to beak up.
Figures from the Australian Bureau of Statistics (ABS) show that for the second consecutive month, retails spending in the country has risen, boosted in large part by price cuts and a strengthening economy.
Demand for credit by business has slowed down compared to the beginning of the year which suggests that economic growth during the first half of 2012 has also declined.
Australian banking major ANZ has decided to hold its standard variable mortgage rate steady at 6.8 per cent, and says its small business loan rate will also remain unchanged.
CBA’s BSI index, a measure of business spending in the Australian economy rose by a strong 2.5 per cent during June, suggesting interest rate cuts and government spending were having the desired effect of boosting growth.
The deputy governor of the Reserve Bank of Australia says that global banking scandals ranging from the Libor affair to the JP Morgan trading loss has undermined consumer confidence in the banking industry.
Whilst the Australian bank chose to hold interest rates steady earlier in the week, many economists believe that is Europe continues to deteriorate; the RBA will slash rates again.