Australian central bank keeps rates on hold

March 4, 2014


The Australian Bank/AFP
The Australian Bank/AFP
SYDNEY, Mar 4 – Australia’s central bank on Tuesday kept interest rates at a record low 2.5 percent for a sixth straight month despite continued weakness in the economy, and suggested it was likely to hold fire for some time.

“In the board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target,” Reserve Bank of Australia governor Glenn Stevens said.

“On present indications, the most prudent course is likely to be a period of stability in interest rates.”

Stevens said consumer demand was firming, a solid expansion in housing construction was expected and some indicators of business conditions and confidence were showing improvement.

At the same time, resources sector investment spending is set to decline “significantly” as Australia’s decade-long Asia mining investment boom drops off while there is little sign of improvement in other parts of the economy.

He also warned that demand for labour remained weak and the unemployment rate was expected to edge up from the current 6.0 percent, which is already the highest in a decade.

“Looking ahead, the bank expects unemployment to rise further before it peaks,” he said.

“Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate. Inflation is expected to be consistent with the 2-3 percent target over the next two years.”

October-December economic growth data is due to be released on Wednesday.

Stevens also said the Australian dollar remained too high. The unit fell to 89.21 US cents after the rate announcement from 89.46 cents before.

Capital Economics’ Asia analyst Daniel Martin said the decision to stay on hold was never in doubt, but tipped another rate cut before the end of the year.

“The RBA appears confident that its earlier rate cuts will lift growth over the coming quarters,” he said.

“We are not so sure, and suspect more support will be needed later in the year, if mining investment continues to weaken as surveys of firms’ investment commitments suggest it will.”

He added: “Overall, we still think there is a strong chance that the RBA will cut its cash rate again later in the year. A rate hike is certainly not on the horizon.”


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