Australia’s central bank has cut interest rates for the first time in seven years as its economy slows.

The Reserve Bank cut rates to 7% from 7.25% to spur growth amid poor retail sales, weak business confidence and slower jobs growth.

Prime Minister Kevin Rudd said the rate cut would be a relief for homebuyers but warned that there would be more tough times ahead for the economy.

Analysts said high inflation would make further rate cuts difficult.

Australia’s central bank, like its counterparts in Europe and the US, faces the challenge of balancing slower economic growth with the threat of inflation because of high food and energy prices.

“Weighing up the available domestic and international information, the Board judged that there was now scope for monetary policy to become less restrictive,” said the Reserve Bank’s governor Glenn Stevens.

The central bank had increased the cost of borrowing as recently as March, lifting rates to a 12-year high as it battled a pick-up in inflation.

But the last few months have also seen household spending fall in the face of record petrol prices and the rising cost of living.

News reported by The BBC

Australia has backed Chinese aluminium giant Chinalco’s recent purchase of a 11% stake in Anglo-Australian mining giant Rio Tinto.

National treasurer Wayne Swan approved the purchase on condition state-owned Chinalco did not buy more Rio shares.

The $14.05bn (£7.6bn) purchase, backed by US firm Alcoa, is China’s largest ever offshore investment.

China’s investments overseas have raised fears of political interference in strategically important industries.

“While Australia welcomes foreign investment in our economy, we will carefully examine national interest issues where these arise in relation to foreign sovereign ownership,” Mr Swan said.

“I have determined that the undertakings agreed with Chinalco are acceptable for protecting the national interest in this matter,” he added.

China agreed not to seek to appoint a director to the firm’s boards.

China bought a 14.99% shareholding in Rio’s London-listed company, which equates to an interest of around 11% in the whole group which includes the Australian listed firm.

Rio Tinto is also fighting off a hostile takeover proposal from BHP Billiton, – the world’s largest miner.

China fears that if the takeover were successful, the combined firms would have a stranglehold on the world’s supplies of iron ore and other raw materials.

News reported by The BBC

Australian energy firm Origin has again urged shareholders to reject a 13.8bn Australian dollar ($13.1bn; £6.7bn) takeover bid from UK rival BG Group.

Reiterating its stance from July, Australia’s second-biggest energy firm said BG’s offer price of A$15.50 undervalued Origin and its prospects.

But BG boss Frank Chapman, leading the hostile bid, said: “Origin’s response lacks any substance or clarity.”

And he said there was no evidence to support the view BG undervalued Origin.

Coal seam gas

“Nor is there any forecast or other financial information which could assist shareholders in valuing the company and making a timely and informed decision,” added Mr Chapman, who is BG’s chief executive.

BG said in June it would go directly to Origin’s shareholders after the board rejected a friendly bid of A$15.50 a share in May.

“Origin is a strongly performing, Australian integrated energy company with an impressive track record of growth,” its chairman Kevin McCann said in a statement on Tuesday.

Origin has developed the leading position in coal seam gas (CSG) in Australia and the strength of this position will be a key driver for continuing growth.”

Mr McCann said Origin had a number of potential partners interested in extending development of the CSG reserves.

Origin also said it would provide shareholders with an independent valuation report containing “all relevant information about Origin’s value and prospects” before BG’s offer closes on 26 September.

But BG’s Mr Chapman said: “Origin has failed to demonstrate any confidence that the coal seam gas ‘monetisation’ process will yield superior value for its shareholders.”

He also said that it was BG’s bid that was holding Origin’s share price at slightly higher than the A$15.50 offer.

‘Early days’

BG went hostile with its all-cash offer on 24 June after an agreed deal was rejected by Origin at the last minute.

The offer is at a 48% premium to Origin’s closing share price on 29 April, before the move was announced.

“There’s a sense that Origin has gotten quite a positive response on its CSG monetisation process, but that’s still in early days, so it’s hard to decide which is a better option,” said Jason Mabee, a utilities analyst at ABN Amro.

“It’s difficult to say what BG might do. There’s a high chance they will wait until they get more details on the CSG monetisation proposals Origin has received, but they could also make a pre-emptive strike and launch a higher offer.”

News reported by The BBC

Australia’s largest bank, the Commonwealth Bank of Australia, has pulled out of talks to buy ABN Amro’s Australian and New Zealand operations.

The move was prompted by worries over raising the funding for the 777m Australian dollar ($676m; £355m) deal.

Australian interest rates are at a 12-year high, prompting banks to increase provisions for bad loans.

Analysts said that this was making it more difficult or more expensive for the banks to raise funds.

Pulling out ‘prudent’

Commonwealth Bank said the amount it could lose due to borrowers defaulting on loans was A$496m higher this year, taking its total bad debt provision to A$930m.

Despite this, its full-year net profit after tax rose 7% to A$4.79bn.

CBA’s announcement followed National Australia Bank and New Zealand Banking Group who warned of rising bad debt charges last month.

Analysts said this had affected the reputation of Australian banks on the financial markets. making fund raising trickier.

Speaking on the decision to pull out of takeover talks, CBA’s chief executive Ralph Norris said: “Obviously it would be a requirement to raise significant funds for the book we would be taking over.

“We agreed it was prudent to not go further.”

CBA confirmed in July that it was in talks with Royal Bank of Scotland which bought ABN Amro last year, about buying the Dutch bank’s holdings in Australia and New Zealand.

News reported by The BBC