Australia keeps rates at 3.50 percent

SYDNEY, Jul 3 – Australia’s central bank held interest rates steady at 3.50 percent on Tuesday saying strong domestic growth was being countered by global uncertainty and recent cuts had provided breathing space.

The Reserve Bank of Australia (RBA) kept the official cash rate at 3.50 percent for July following two rounds of cuts — 50 basis points in May and 25 points in June — which took rates to a level not seen since November 2009.

“As a result of the sequence of earlier decisions, there has been a material easing in monetary policy over the past six months,” RBA governor Glenn Stevens said in a statement.

“At today’s meeting the board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate.”

The Australian dollar slipped slightly from US$1.0277 to US$1.0268 on the news.

Stevens said while improvements had been made in Europe, the region’s financial woes “will remain a potential source of adverse shocks for some time”, with global share markets continuing to be volatile.

Australia’s economy was expanding “at a pace somewhat stronger than had been earlier indicated”, he said, with growth of 1.3 percent in the first quarter of 2012 and 4.3 percent in the year to March.

Labour market conditions had “also firmed a little” he added, with unemployment “low” at 5.1 percent in May.

Globally, Europe appeared to be weakening and key Australian trading partner China was also seeing a “slower pace of growth”, with the trend in Asia more broadly clouded by global uncertainty.

Commodity prices had fallen, tempering inflation and driving a peak in Australia’s terms of trade — the value of its exports versus imports — though the mining-powered dollar remained high.