Govt opens door to new rates cut

A CUT to interest rates could be on the cards after Federal Treasurer Wayne Swan intimated the government would provide space to the Federal Reserve Bank to cut the cash rate if necessary.

Mr Swan released his economic note yesterday indicating the government would "step back" to allow more private investment to flow.

"We were one of a handful of developed economies to avoid a deep and damaging recession," he wrote.

"Just as it was right to step in and support demand when it was needed, it's right now to be stepping back to provide space for the private sector to grow and to ensure the Reserve Bank has the flexibility to cut interest rates further if it thinks that is necessary.

"This is a key reason why getting the budget back to surplus in 2012-13 is an economic imperative," he said.

"It's the right strategy for an economy returning towards trend growth with relatively low unemployment and a huge pipeline of investment."

Mr Swan also tagged further cuts during budget sittings month, as part of the government's "commitment to return the budget to surplus".

The treasury recorded a deficit of $1.7 billion in the Mid-year Economic Fiscal Outlook in November.



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