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Australia's central bank says it will have more room to cut interest rates because a “significant moderation'' in domestic demand will slow inflation, cut economic growth by half and drive up unemployment.

“Economic growth will be fairly slow in the period ahead,'' the Reserve Bank of Australia said in its quarterly policy statement released in Sydney today. Gross domestic product will probably expand 2 percent this year compared with 4.3 percent in 2007 and less than the 2.25 percent forecast in May.

Today's statement suggests Governor Glenn Stevens will ignore a spike in the inflation rate to prop up an economy buffeted by weaker domestic spending and falling house prices. Stevens, who left the benchmark rate unchanged at a 12-year high 7.25 percent last week, says consumer prices will peak in the fourth quarter, before falling below 3 percent by mid-2010.

“It confirms there's scope for an easing cycle to begin, most likely in September,'' said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “I don't think there's anything in there that suggests a more aggressive move.

“Part of the reason there isn't a green light for a 50- basis point cut is that the inflation forecast numbers have been revised up for the near term.''

The Australian dollar dropped to 88.65 U.S. cents at 1:02 p.m. in Sydney from 88.72 cents before the statement was released. The two-year government bond yield fell 2 basis points, or 0.02 percentage point, to 5.92 percent.

Scope to Cut

The currency has declined 10 percent against its U.S. counterpart since reaching a 25-year high of 98.49 cents on July 16 on speculation the Reserve Bank will cut borrowing costs as soon as next month.

“On the assumption that the subdued demand conditions are likely to continue, scope to move to a less restrictive monetary policy stance in the period ahead is increasing,'' the bank said today. Stevens expects a “significant reduction in inflation over time.''

Inflation is forecast by the bank to peak at 5 percent in the fourth quarter, compared with the 4.5 percent predicted in the May statement, before slowing to 2.75 percent in 2010.

The bank aims to keep annual gains in consumer prices between 2 percent and 3 percent on average. They rose 4.5 percent in the second quarter.

Today's statement said “demand pressures in the economy now appear to be easing'' and it expects a “significant period'' of slower growth.

Bank's Dilemma

“The Reserve Bank is grappling with high inflation and weakening growth,'' said Tom Kenny, chief economist at Nomura Australia Ltd. in Sydney http://savingpaydayloans.com. “Growth is slowing a bit faster than they anticipated three months ago.''

There are risks to the bank's inflation forecasts “in both directions,'' today's statement said.

While the second-quarter consumer prices index report suggested “quite tentative'' evidence inflation pressures may no longer be rising, income from Australia's trade boom could stimulate domestic spending and leave “inflation expectations entrenched at unacceptably high levels,'' the statement said.

Demand for coal and iron ore from China has boosted Australia's terms of trade, a measure of export income, by 20 percent this year, taking the increase in the past five years to 65 percent, the bank said. “The income gains from this source continue to represent a significant stimulus to the economy.''

Policy makers raised the benchmark interest rate in March, February, November and last August amid concern the lowest unemployment in more than three decades would drive up wages and inflation.

Consumer Confidence

Stevens and his board will cut the overnight cash rate target by at least 25 basis points to 7 percent when they meet on Sept. 2, according to 18 of 25 economists surveyed by Bloomberg last week. Five predict a 50 basis point reduction and seven expect no change.

The economy will probably grow 2.5 percent in 2009 and 2.75 percent in 2010, today's statement predicts. It expanded 0.6 percent in the first quarter, the slowest quarterly pace in almost two years. Second-quarter gross domestic product figures will be released on Sept. 3.

Consumer confidence slumped in July to the weakest level in 16 years and home-loan approvals tumbled in June to a four-year low.

The bank also said “any further deterioration in the outlook for global growth would present a significant downside risk'' to Australia, “particularly if it led to a marked slowing in growth in China and India.''

Market Turmoil

“In addition, the ongoing turmoil in capital markets could exacerbate the slowing in domestic growth by further reducing the availability of credit to households and businesses,'' it said.

The Reserve Bank said investment in the housing market is “expected to contract over the next year.''

House prices fell in the second quarter for the first time in almost three years.

Demand for labor will continue to ease, the bank said. Australia's jobless rate was 4.3 percent in July, up from 3.9 percent in February, which was the lowest since 1974.

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Builders probably broke ground on fewer homes in May, signaling the residential real-estate market remains the biggest risk to growth, economists said ahead of reports this week.

Housing starts fell to a 980,000 pace last month, from 1.032 million in April, according to the median forecast in a Bloomberg News survey. Building permits, a signal of future construction, fell to a 960,000 rate.

Rising foreclosures, higher mortgage rates and declining property values threaten to keep home sales depressed in coming months, discouraging builders from starting new projects. Declines in construction will limit any rebound in economic growth, even as tax rebates give consumers a temporary boost.

“The first signals of stabilization are going to come from new-homes sales, which we haven't seen yet,'' said Julia Coronado, a senior economist at Barclays Capital in New York. Housing “will be on a downward trend.''

The Commerce Department's construction report is due June 17. Housing starts dropped to a 17-year low 954,000 annual pace in March.

Banks repossessed twice as many homes in May and foreclosure filings rose 48 percent from a year ago as falling house prices trapped borrowers in mortgages they couldn't afford, RealtyTrac Inc. said last week.

One in every 483 U.S. households either lost a home to foreclosure, received a default notice or was warned of a pending auction, RealtyTrac said.

Builder Losses

The five largest homebuilders have reported a combined $3.4 billion in losses in their most recent quarters as new-home sales fell. Stricter lending standards and rising foreclosures are reducing demand for homes.

A report tomorrow from the National Association of Home Builders/Wells Fargo is forecast to show builder optimism held at the second-lowest level on record this month.

The slump in construction will be one factor restraining economic growth in coming months, a report from the Conference Board may show on June 19. The New York research group's index of leading economic indicators was unchanged in May, according to the median estimate free credit report .com. The gauge points to the direction of the economy over the next three to six months.

Another concern is the spiraling cost of raw materials. Wholesale prices jumped 1 percent last month, pushed up by energy and food costs, a Labor Department report on June 17 may show, according to the Bloomberg survey.

So-called core producer prices, which exclude food and fuel, increased 0.2 percent after a 0.4 percent April gain.

Fuel Costs

The Labor Department's report on consumer prices last week showed a jump in fuel costs also contributed to a 0.6 percent increase in the cost of living in May. The core rate rose just 0.2 percent, indicating companies haven't been able to completely pass the increase in expenses along to customers.

“The energy shock not only boosts headline inflation, but also erodes consumer purchasing power and squeezes profit margins,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York.

Federal Reserve Chairman Ben S. Bernanke last week said policy makers are paying “close attention'' to rising commodity costs and will “strongly resist'' any surge in inflation expectations.

At the same time, the risk the economy has entered a substantial downturn “appears to have diminished over the past month or so,'' Bernanke said.

Fed policy makers are scheduled to next vote on the direction of the benchmark overnight lending rate between banks at the conclusion of their June 24-25 meeting.

Rising costs and slowing demand have taken a toll on manufacturing. A report from the Fed on June 17 may show industrial production increased 0.1 percent in May, after a 0.7 percent drop the prior month. Improving sales overseas are helping to prevent a deeper factory slump.

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A California appeals court upheld a judgment against Cintas Corp. on Wednesday, ordering it to pay more than $2 million to 219 current and former Cintas workers and their lawyers.

The ruling confirmed a trial court’s conclusion that Cintas (NASDAQ: CTAS) was liable for not paying workers at its nearby laundry facilities the minimum wage and benefits required under a Hayward, Calif., so-called "living wage" law. The Cincinnati-based uniform supplier’s plants that serviced the city were bound by that law because Cintas was under contract to supply the city of Hayward with uniforms, shop towels and mats, the courts said.

Cintas eventually terminated the contract after four years, and workers filed a class-action lawsuit to collect back wages and benefits cash advance.

The trial court rejected the company’s contention that the city had no authority to regulate wages at facilities outside the city’s boundaries, and the appeals court agreed with that ruling. If Cintas didn’t want to pay the level of compensation required by the law - $8 an hour for workers without health insurance; $9.25 for those with insurance - all it had to do was decline the contract, which it eventually did, the court said.

The court ordered Cintas to pay about $800,000 in back wages and benefits, plus interest, as well as $259,000 in civil penalties. It also must pay $1.2 million in legal fees to the plaintiffs’ lawyers.

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Andrew Witty, who takes over as chief executive of GlaxoSmithKline Plc (GSK.L: Quote, Profile, Research) on May 22 in the year’s biggest scheduled British corporate handover, faces a daunting task.

A safety scare over diabetes drug Avandia plus generic competition means the world’s second largest drugs company faces a fall in 2008 earnings, while new drugs are taking longer to emerge from the laboratory than originally hoped.

With no quick fix in sight, analysts believe Witty’s top priorities will be to shore up sales and reassure investors on the large but unproven pipeline.

“There’s no jam today. He needs to deal with the issue surrounding Avandia and decide whether that product is going to grow again; if not, they need to kill it,” said Navid Malik, pharmaceuticals analyst at stockbroker Collins Stewart.

“He also needs better visibility on the pipeline.”

The straight-talking 43-year-old Briton takes over from Frenchman Jean-Pierre Garnier, who has led the group since its creation via a merger seven years ago.

His appointment reflects a trend towards younger chief executives in the pharmaceuticals industry easy payday loan. Severin Schwan, 40, took over at Switzerland’s Roche Holding AG (ROG.VX: Quote, Profile, Research) two months ago.

Witty — an insider who has worked in all of Glaxo’s geographical areas — inherits a business with a revamped research and development machine, based on semi-autonomous drug discovery units, but a flagging stock price. 

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The McClatchy Co. continues to slash its estimated value of its investment in The Seattle Times Co., as both the local daily and the newspaper industry continue to reel from lost revenue.

The Sacramento-based company said its 49.5 percent stake in the Times has a carrying value of $12.06 million, down 38 percent from the value McClatchy (NYSE: MNI) calculated in December, according to a Securities and Exchange Commission filing late Friday.

The write-down follows series of similar moves in the past 18 months.

McClatchy had valued its interest in The Seattle Times Co. at $102.2 million at the end of 2006 and $89.9 million in June http://pay-day-home.com. In December, McClatchy dropped its estimated value of the investment to $19.3 million.

McClatchy is the nation’s third-largest newspaper company, with 30 daily newspapers and direct marketing and direct mail operations.

The company reported a first-quarter loss of $993,000, compared to $14.5 million a year ago.

McClatchy reported first-quarter revenue of $488.3 million, down 13.8 percent from first-quarter 2007. Advertising revenue fell 15.3 percent from the first quarter of 2007, and circulation revenues were down 5.6 percent.

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