Sinodinos Says Spending Restraint Gives Aussie Scope to Decline

Australian Assistant Treasurer Arthur Sinodinos said government spending restraint will allow interest rates to remain lower for longer and provide room for the nation’s currency to decline.

“We’re doing what we can to support the current monetary policy settings and in turn hopefully put downward pressure on the dollar through consolidating our budget,” Sinodinos said in an interview with Bloomberg Television. “It’s important that the government plays its role in consolidating its budget and providing the room for the dollar to fall and for low interest rate settings to be consolidated.”

The Australian dollar traded above 90 U.S. cents today even as iron ore, the nation’s biggest export, slumped the most since 2009, and the central bank maintains a record-low benchmark rate of 2.5 percent. Australia’s coalition government -- which has pledged to return the budget to surplus within a decade -- is aiming to repair a deficit projected to balloon to A$47 billion ($42 billion) in the year through June.

In Australia, property prices have surged, along with concern homes are becoming unaffordable, as the Reserve Bank of Australia cut rates by 2.25 percentage points from late 2011 to August and signaled a period of steady borrowing costs.

“What we are seeing is a classic price response, which should induce a supply response,” Sinodinos said. “We are already seeing dwelling investment going up. So obviously we would be hoping the market corrects itself. Certainly the Reserve Bank is keeping an eye on all of this.”

The RBA has examined a range of macro-prudential tools and favors closer supervision of lending over “tick-a-box” regulations to help deal with a property boom, documents released yesterday under a Freedom of Information Act request showed.

The Australian dollar traded at 90.32 U.S. cents at 2:49 p.m. in Sydney, snapping two days of declines. Traders are pricing in 14 basis points of rate increases in the next 12 months, according to a Credit Suisse Group AG index based on swaps.

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