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Reserve Bank trims growth as mining boom peak -

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BRENDAN TREMBATH: The Reserve Bank (RBA) has downgraded its growth outlook for the Australian economy and has signalled that the resources boom will peak earlier than expected.

In its quarterly statement on monetary policy released today, the RBA puts growth in the year to June 2013 as "a little weaker" at just below 2.75 per cent.

The RBA has also pointed to the looming budget crisis in the United States known as "the fiscal cliff" as a key risk to the global economy.

Our business editor Peter Ryan has been at the RBA's headquarters in Sydney's Martin Place and he joins me now.

Peter, how significant is the Bank's revision given Australia's reliance in a large measure on resources?

PETER RYAN: Well, Brendan, the RBA has sent reality checks in the past but this one really underscores the view that the boom has peaked and it says that this change in outlook reflects a big reappraisal of spending plans in the coal and iron ore sectors as well as a reassessment of spending on some large and complex liquefied natural gas projects which we've been hearing about as well.

So the RBAs warning that the outlook for growth is sensitive to prospects for mining investment and also it points to the timing and extent of any anticipated economic recovery we might see here in Australia.

BRENDAN TREMBATH: But just to be clear, is the Reserve Bank saying the boom is over and that Australia needs to be prepared?

PETER RYAN: Well, not over yet but the RBA is certainly managing expectations. But the RBA believes that mining exports, the resources pipeline or the investment pipeline is still forecast to grow substantially given the increased capacity from the current pipeline of investments but the signal is don't rely on a return to any peaks from the past and that's maybe also a message to the Government that budget surpluses might not necessarily be driven in the future by tax receipts from the big miners.

BRENDAN TREMBATH: The quarterly statement has made a feature of the looming "fiscal cliff" as it's widely called, in the United States. How much of a worry is this to the Reserve Bank?

PETER RYAN: Well, it really underscores what will happen if these automatic budget cuts and tax increases occur and it says it would represent the largest reduction in the federal budget in the US in a single year since 1969 and such a rapid reduction would result in average growth in the US falling by 3 to 4 percentage points.

So that would put the US economy back in recession and under water. So it is really looking for a face saving solution between the Republicans and the Democrats and we have been talking about a fiscal cliff but it really represents what could be an economic war between Republicans and Democrats.

It needs to be sorted by midnight on the 31st of December.

BRENDAN TREMBATH: The Reserve Bank's mandate is keeping inflation low. It is low at the moment but what is the forecast?

PETER RYAN: Looking as though inflation is largely unchanged. Underlying inflation close to around about 2.5 per cent over the next year but it says that headline inflation could hit around about 3 per cent in the first half of next year because of the impact of the carbon tax but also some of continuing volatility in fruit and vegetable prices.

BRENDAN TREMBATH: And Peter quickly, the Australian dollar?

PETER RYAN: The Australian dollar fell from about 104.3 to 103.9 after that result.

BRENDAN TREMBATH: Business editor Peter Ryan.