Interest rates falling, but not forever

Interest rates falling, but not forever

Posted on Monday, January 09 2012 at 5:19 PM

Landlords have enjoyed recent drops in interest rates and many economists predict they’ll fall further this year. But a report written by the Reserve Bank of Australia (RBA), The Mining Industry: From Boom to Bust, suggests otherwise. It indicates the mining boom could in fact result in inflationary pressure over the next few years, which means rate rises may not be too far around the corner.

“This is likely to be a challenging environment for policy as it attempts to ensure continued containment of overall demand and inflation pressures,” the report says.

“The economy is now closer to full employment and hence additional demands for labour and other inputs from the domestic economy and the distribution of mining revenues have the potential to spill over into further changes in input and non-tradeable prices.

“The boom has also been associated with a large increase in the real exchange rate, affecting trade-exposed industries.”

The report adds production and export volumes of iron ore, coal and LNG are expected to grow strongly over the coming years, with $35 billion worth of iron ore investment projects committed. This should increase Australian iron ore export capacity by a further 50 per cent between 2011 and 2015.

“Australia’s capacity to export coal in 2013 is projected to be around 20 per cent higher than it was in 2010,” it says.

“Three CSG-LNG projects in Queensland have recently received investment approval – the first CSG-LNG projects in the world to progress to this stage of development. When committed projects in Western Australia and Queensland are combined, Australia’s LNG export capacity is expected to be almost three times higher in 2016 than it was in 2010.”

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