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(EMAILWIRE.COM, December 13, 2012 ) San Francisco, CA -- A week of financial data on AustraliaÂ’s economy over the past six months offers a hint of what 2013 will be like.
The figures show that housing costs have not changed much and hiring has not picked up, but at the same time inflation has been little cause for concern.
Unemployment slid to 5.2%, the lowest in three months, according to official figures. Although more people now are working, many of the jobs are part-time.
On the national stage, the economy grew at a sluggish 0.05% and corporate profits fell.
It was in this context that the Reserve Bank of Australia reduced its cash rate to 3%.
The reduction of 25 basis points is intended to help “foster sustainable growth in demand,” said the bank’s governor, Glenn Stevens, according to the Australian Associated Press.
The rate cut sparked a war of words about fiscal policy between Treasurer Wayne Swan and his shadow counterpart, Joe Hockey.
Hockey said the 3% rate was tantamount to an “emergency level” last used during the world financial slump of 2008-2009.
“The Australian economy is facing huge challenges,” he said.
Swan struck back, saying that Hockey was conducting a scare campaign.
“Anybody who is making a comparison between rates then, at the height of the global financial crisis, and rates now and saying that they are at the same level for the same reason, is simply unqualified to run a modern economy,” Swan said.
Banking officials, however, suggested a different explanation.
The traditional thinking about setting the cash rate has evolved, said Reserve Bank of Australia Deputy Governor Philip Lowe. Mortgage rates changed along with the cash rate for years before the global slump.
“This has obviously changed over recent years,” said Lowe, “as bank funding costs – and hence mortgage rates – have risen relative to the cash rate.”
The cash rate is less than it would have been because the bankÂ’s leaders are factoring in these funding costs.
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