The chances of Australia’s central bank cutting interest rates from a record low2.5 per cent are evaporating on signs the mining industry is gaining on the back of a global economic recovery.
The odds of a reduction by the end of December dropped to 37 per cent, from61 per cent twoweeks ago, interest rate swaps data compiled by Bloomberg show.
Australia’s two-year bond yields rose the most among other developed nations this month as growing iron ore shipments, rallying commodity prices and
rebounding Chinese exports added to signs global demand is strengthening.
Australian prime minister-elect Tony Abbott said plans to scrap carbon and mining taxeswould boost exports to China, the nation’s largest overseas market.
‘‘The bearish viewon China has not played out,’’ said John Honan, the Sydney-based chief economist atAusbil Dexia,which oversees the equivalent of $8.9 billion.
‘‘There’s a rising growth environment internationally and that’s supporting markets and our economy and will continue into the rest of this year and next year,’’
Mr Honan said.
Iron ore shipments fromWestern Australia’s Port Hedland, the world’s biggest bulk terminal, climbed in August as cargoes increased to China.
At the same time prices for iron ore delivered to the Chinese port of Tianjin have climbed about 22 per cent fromthis year’s low in May.
Ausbil predicts the RBA will keep its key rate at 2.5 per cent until June 2014 and raise it to 3 per cent by December next year.
Data this month showed China’s overseas shipments rose 7.2 per cent in August froma year earlier, beating forecasts for a 5.5 per cent increase,while manufacturing
Economists are split on the direction the RBA will take over the next 12 months, with 11 of 32 polled by Bloomberg predicting the central bank will keep rates unchanged until the third quarter of 2014.
A further 12 are forecasting at least one more cut and nine are projecting at least one rate increase by then.
The case for lower rates stems fromthe fact that Australia’s mining investment boom has peaked and gains in commodity exports are unlikely to replace the job losses that will occur as project spending declines, according to Westpac,which has forecast two further cuts from the RBA.
‘‘We’re about to get a resource export boom,which is jobs-poor growth as compared to an investment boom that’s peaked,’’ said Justin Smirk, senior economist at
Westpac in Sydney.
‘‘China can have better-thanexpected growth, commodity prices can be better than expected and rates can still go lower in Australia,’’ he said.
The recent revival in China data is also boosting the Australian dollar, putting pressure on industries from manufacturing to tourism,which theRBAhas said
may fill the growth deficit left as mining wanes.
The Aussie reached US92.51¢ on Tuesday, the strongest since July, and has gained 3.9 per cent this month after the RBA left its key rate unchanged lastweek.
Policymakers reiterated on September 3 that the Aussie remains high, adding that further depreciation would benefit the economy.