RBA flags more rate cuts, Telstra shares plunge again, construction sector stumbles: Economy roundup

The release this morning of the minutes of the RBA board’s December meeting has raised hopes for further interest rate cuts early in 2009.

The release this morning of the minutes of the RBA board’s December meeting has raised hopes for further interest rate cuts early in 2009.

The board says in the minutes that the decision to cut the official interest rate by 100 basis points to 4.25% was an effort to move the cash rate to a growth setting.

“Members felt that, on this occasion, a reduction of 100 basis points was appropriate and would contribute to supporting confidence among households and businesses. In particular, a reduction of this size would move monetary policy quickly to an expansionary setting,” the RBA says in its minutes, released today.

“With confidence affected by the financial turbulence and a decline in the terms of trade now under way, members thought that more cautious behaviour by both households and businesses would result in private demand remaining subdued in the near term.

“Given these circumstances and the associated easing in capacity pressures, there would be downward pressure on inflation in Australia over the year ahead.”

Telstra plummets again

The Australian sharemarket has opened nearly 1% lower, following disappointing results from Wall Street overnight. The benchmark S&P/ASX200 index was down 62 points or 1.73% to 3529.4 at noon AEDT.

The dollar has remained steady at $US66 cents.

The biggest loser for the morning was telecommunications giant Telstra, which suffered a 6% fall after dropping 7% yesterday to a two-year low. Investors are clearly unimpressed with the Federal Government’s decision to lock Telstra out of the bidding process for the building of the national broadband network (NBN).

Telstra says the Government’s decision is trivial, but Federal Communications Minister Stephen Conroy says it has only has itself to blame after not abiding by the bidding rules.

Most commentators expect Telstra will become involved in the NBN process at a later date despite the flare-up, but investors clearly need more convincing.

On Wall Street overnight the Dow Jones Industrial Average fell 0.75% to 8564.53. Oil prices fell nearly 4% on expectations OPEC will make its biggest supply cut ever this week.

Weak construction data

Meanwhile, property construction has taken a hit. New Bureau of Statistics data revealing the trend estimate of construction of new units fell a seasonally adjusted 10.6% in the September quarter.

The seasonally adjusted estimate for the total number of new dwellings commenced fell 10.7% in the September quarter, while private sector house commencements fell a seasonally adjusted 11%.

Other residential building commencements fell 9.4%, which follows a 7.5% drop in the June quarter.

Miner cuts jobs

OZ Minerals, Australian’s biggest zinc miner, has slashed 135 jobs at its Century Mine in northern Queensland. The group says it must do what it can in order to survive plummeting metals prices.

“Reducing operating and capital costs, changing our three-year plan to reflect reduced costs and constantly adapting to changes in world markets has not been enough to keep the business in the black,” Century Mine general manager John Lamb said in a statement.

In retail news, Harvey Norman has recorded a 4.5% rise in like-for-like sales in the 28 days to 14 December, but says margins are continually under pressure.