Iron ore plunge stokes pressure for Australia rate cut
By James Regan and Wayne Cole
SYDNEY, April 2 (Reuters) - Pressure is mounting for a cut in Australian interest rates as soon as next week as plunging prices for iron ore, the country's single most valuable export earner, punish both mining profits and government tax revenue.
The Reserve Bank of Australia (RBA) holds its monthly policy meeting on April 7 and markets are wagering heavily it will follow up a February easing with another quarter point cut to an all-time low of 2.0 percent.
In part any move would be aimed at lowering the Australian dollar, which would assist commodity producers exporting U.S. dollar-priced products.
Westpac chief economist Bill Evans noted iron ore prices had fallen around 15 percent since the RBA's March policy meeting, while the local currency was only down a single U.S. cent.
"That is why it will be important for the bank to maintain an easing bias when it announces the cut next week," said Evans. "It will maintain downward pressure on the AUD."
Interbank futures <0#YIB:> imply a better than 60 percent probability of an April easing, and are fully priced for one by May. Indeed, investors are already wagering rates will fall to 1.75 percent before the year is out.
RBA governor Glenn Stevens says Australia is struggling with the end of its mining boom, noting that past mining booms had almost all ended very badly for Australia, usually through runaway inflation followed by a major crash. But Stevens says the RBA will continue to support the economy.