Australia's Swan: Central Bank Has Flexibility to Cut Rates

Australia Treasurer Wayne Swan
Getty Images
Australia Treasurer Wayne Swan

Australia's Treasurer Wayne Swan says the government's plan to bring the country's budget back to surplus gives the central bank flexibility to cut interest rates.

Speaking before the Reserve Bank of Australia's (RBA) interest rate decision later on Tuesday, Swan's words could add pressure on the RBA to cut rates.

"I don't intend to pre-empt that decision but this is where strong budget management really matters, and bringing our budget back to surplus does give maximum flexibility to the Reserve Bank to cut rates if it should decide to do so," Swan told reporters in Canberra.

The Reserve Bank is widely expected to cut rates by 25 basis points on Tuesday, as the country's housing and retail sectors slow. Some analysts expect the rate cut to mark much more aggressive monetary easing by the central bank.

Australian stocks have dropped in recent weeks, wiping out the gains for the year and the Australian dollar has tumbled, falling below parity versus the greenback.

Earlier this year, the government promised to return the federal budget to surplus in the 2012-2013 fiscal year, but many analysts say achieving those goals is going to be difficult given slowing growth at home, and in China, which is Australia's largest trading partner.