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RBA Straddles Record House Slump, Mining Boom: Chart of the Day

Australia’s central bank, weighing a second consecutive interest-rate cut next week, is caught between the weakest housing-loan growth on record and signs the nation’s biggest resource boom is accelerating.

The CHART OF THE DAY shows mortgage lending rose 5.7 percent in October from a year earlier, the smallest gain since records began in 1990. In contrast, business investment surged to A$37.3 billion ($37.2 billion) last quarter, the highest level since 1989. Australia is the world’s largest exporter of iron ore, and shipments to China of the mineral used in steelmaking have more than doubled since 2007 to a record.

Reserve Bank of Australia Governor Glenn Stevens lowered borrowing costs Nov. 1 by a quarter percentage point to 4.5 percent as Europe’s sovereign-debt crisis threatens to slow growth in Asian nations. Futures traders are betting he will ease again at the Dec. 6 meeting.

“The RBA is in a bind, it’s a real dilemma,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney. “If they cut rates and consumers and housing comes to the party at the same time as business investment is spiking, they’ve got an inflation fight on their hands.”

Stevens last week refused to comment on the path of rates during a speech, saying he didn’t “want to preempt future decisions of the board.” He also noted there was a “pretty good chance” that inflation next year would stay within the RBA target of 2 percent to 3 percent.

The government data released yesterday showed that business investment jumped by the most in 15 years in the third quarter and an RBA report showed the slump in home lending, reflecting the other side of Australia’s two-speed economy. Industries from manufacturing to education and tourism have sagged in response to the developed world’s highest borrowing costs and the currency’s climb to a record high.

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