Australia's top central banker reassures on mining, hints that interest rates are on hold

Australia’s central bank chief said on Friday there was no sign the mining boom is over and signalled that interest rates are likely to stay on hold unless there is a drastic change to its optimistic outlook for the economy.

Reserve Bank of Australia (RBA) Governor Glenn Stevens said the resource-rich economy was growing at its potential and inflation was consistent with its 2-3 per cent target band, although he conceded the global environment was still weak.

“I probably describe myself as cautiously optimistic. I have tried to get people to see the glass half full rather than half empty, because I do think we risk talking ourselves into more gloom than we really should,” he told lawmakers in his twice-yearly parliamentary testimony in Canberra.

Stevens reiterated that it was too early to tell the effects of past interest rate cuts. The RBA has lowered its cash rate by 125 basis points since November to 3.5 per cent.
But he said the bank was prepared to respond to any ”significant deviations” to its central outlook.

Financial markets took his comments in their stride with the Australian dollar little changed at US$1.0437. Interbank futures were flat, implying a scant 16 per cent chance of a rate cut at the September 4 policy meeting.

Over a 12-month period, the market still has around 50 basis points worth of cuts priced in.

Stevens’ comments came just days after BHP Billiton , the world’s biggest miner, shelved two expansion plans in Australia worth at least $40 billion, prompting Resources Minister Martin Ferguson to declare: “You’ve got to understand, the resources boom is over. We’ve done well - A$270bn in investment -- the envy of the world,” he said, sparking fears the country’s mining boom had come to an end.