• Reserve Bank governor Glenn Stevens has raised the prospect of an interest rate cut next week.
Reserve Bank governor Glenn Stevens has left the door wide open for an interest rate cut when his board meets next Tuesday.
Source
AAP
30 Jul 2013 - 6:54 PM  UPDATED 26 Aug 2013 - 10:48 AM

Central bank boss Glenn Stevens has raised the prospect of an interest rate cut next week, concerned by the low level of business confidence.

The Reserve Bank of Australia (RBA) governor says it would be "desirable" to see a stronger expansion in other sectors of the economy as the mining investment boom ends.

"While there are signs of an increase in dwelling investment getting underway, a stronger trend in non-resources business investment looks like it is a while off yet," Mr Stevens said on Tuesday in his annual Anika Foundation address in Sydney.

He reiterated that the inflation outlook provides some scope to cut the cash rate further if needed.

"The recent inflation data do not appear to have shifted that assessment," he said.

Financial markets are now pointing to a strong chance of a 25 basis point cut in the cash rate to 2.5 per cent at next Tuesday's monthly board meeting.

New data highlighted the sluggishness of the transition from mining with home building approvals unexpectedly falling 6.9 per cent in June, just one month after the last rate cut.

Economists had expected a two per cent rise in June.

Treasurer Chris Bowen said monthly figures were volatile, particularly in the medium to high density sector.

"I'm confident the housing sector will continue to recover," Mr Bowen told AAP.

"On a quarterly basis growth is still positive and is supporting a recovery in residential construction activity."

But Mr Stevens is concerned that confidence has remained subdued.

"It would be good if there was a bit more confidence in the business community about the future," he said.

On that score, he said there needed to be clarity of policy frameworks and objectives towards well-understood goals, while not unnecessarily dampening confidence.

Shadow treasurer Joe Hockey pounced on the comments, blaming the government for the general lack of confidence, despite interest rates being at record lows.

"As the governor of the Reserve Bank said today, business confidence is affected by ad hoc decision making and unpredictable decisions," Mr Hockey told reporters in Sydney.

Unsurprisingly, Mr Stevens later declined to say whether his comments were aimed at the government.

"I am simply making the point that ... this is the way that we are seeking to do our job, and I think that's a good set of principles, and I would be very surprised if the government didn't agree," he said.

He noted that fiscal policy was in "consolidation mode", saying this was "broadly appropriate".

The treasurer is putting together an economic statement for later this week, updating the budget to take account of new savings to pay for initiatives since May and a further decline in revenues.

Opposition Leader Tony Abbott has also promised voters they will know exactly where the coalition plans to make savings to pay for its policies well before the election.