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Weaker Aussie, low cash rate will boost Australia growth prospects-Kent

Published 03/10/2015, 07:17 PM
Updated 03/10/2015, 07:19 PM
Low rates in Australia to boost growth

Investing.com - A weaker Australian dollar from a mid-2013 peak has helped the economy adjust to new sources of demand with growth expected to gradually pickup, a senior Reserve Bank official said Wednesday.

Assistant Governor Christopher Kent told the National RSL Clubs Conference in Hobart that a record low cash rate of 2.25% and other measures should help rebalance economic growth away from the end of a mining boom.

"Very low level of interest rates is expected to sustain strong activity in the housing market and support household wealth" and provide support for household consumption," Kent said.

"Low interest rates also work by raising overall cash flows for the household sector since households are borrowers in net terms and by encouraging households to bring forward some spending and lower their savings rate a little further."

Kent said an Australian dollar that has fallen by nearly 20% on a trade-weighted basis since its peak in mid-2013 was also playing a part.

"A lower exchange rate will provide support for demand for the output of the wide range of firms operating in the tradable sector," Kent said.

The RBA pushed out the time frame at which growth will pickup from its current sub-trend pace, Kent said. This was not because economic growth had weakened but because there was "little to suggest that it will increase in the near term."

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