Australian central bank may cut rates as commodity prices tumble

Sydney, Australia (4E) – Falling commodity prices is the latest economic challenge for the central bank of Australia, a country that has benefited in the resource boom in recent years.

Sharp decline in the price of iron ore in recent days has caused a downward pressure to the Aussie dollar.

Economists fear that the currency may take a hit should price of the commodity fall to the level much lower than what the Reserve Bank of Australia (RBA) or authorities elsewhere are expecting.

At noon on Friday, the Australian dollar traded at $US1.0292, which is lower compared to $US1.0336 on Thursday.

The market’s anticipation of U.S. Fed Chairman Ben Bernanke’s speech in Jackson Hole, Wyo. kept the currency from sliding further as there was expectation that more stimulus will be injected by the Fed into the U.S. financial system although no such action was taken.

A rate cut from the RBA is likely in the following months as outlook for economic growth is continued to be threatened by a slowing Chinese economy, declining gains from mineral exports, and the ongoing euro zone debt crisis.

Glenn Stevens, the governor of the RBA, has discussed with Parliament in recent hearings about the possibility of the Australian dollar coming under pressure.

The central bank has been monitoring the price movements of iron ore which has fallen to its lowest levels since October 2009. Its members will hold a meeting on Tuesday but some analysts say it is unlikely that the RBA will cut rates by then.

The last time the RBA cut interest rates was in June when they slashed the cash rate by a quarter of percentage point to 3.5 per cent.

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