The Courier-Mail

Mates rates re­main amid global woes

- PAUL GILDER TERRY MCCRANN P48

THE Re­serve Bank of Aus­tralia kept the of­fi­cial cash rate on hold yesterday fol­low­ing re­cent global share­mar­ket tur­moil.

The de­ci­sion to hold in­ter­est rates at the record-low 2 per cent was in line with ex­pec­ta­tions.

In a state­ment ac­com­pa­ny­ing the de­ci­sion, RBA gover- nor Glenn Stevens noted re­cent volatil­ity in global fi­nan­cial mar­kets, sparked by wor­ries about slow­ing Chi­nese eco­nomic growth.

The cur­rent cash rate of 2 per cent “re­mains ap­pro­pri­ate”, he said, adding: “The global econ­omy is ex­pand­ing at a mod­er­ate pace, with some fur­ther soft­en­ing in con­di­tions in China and east Asia of late, but stronger US growth.”

He said Aus­tralia’s econ­omy was ex­pe­ri­enc­ing mod­er­ate ex­pan­sion but it was “be­low longer-term av­er­ages”.

NER­VOUS in­vestors yesterday dis­re­garded the Re­serve Bank’s de­ci­sion to keep rates on hold and in­stead fix­ated on bad Chi­nese eco­nomic news.

Man­u­fac­tur­ing ac­tiv­ity in China fell to a three-year low in Au­gust, de­spite gov­ern­ment ef­forts to sup­port growth.

“China has still got some is­sues ahead of it­self,” said Ge­orge Boubouras, chief in­vest­ment of­fi­cer at Con­tango As­set Man­age­ment.

The dis­mal per­for­mance sent shud­ders through global mar­kets. The ASX 200 tum­bled 2.12 per cent to 5096.41.

The ASX 200 fell 8.6 per cent in Au­gust - its worst month since the GFC - while China’s Shang­hai Com­pos­ite plunged 12.5 per cent. China’s bench­mark in­dex fell another 1.23 per cent yesterday.

In a state­ment ac­com­pa­ny­ing yesterday’s in­ter­est rate de­ci­sion, RBA gover­nor Glenn Stevens couched the mar­ket blood­let­ting in san­guine terms.

“Eq­uity mar­kets have been con­sid­er­ably more volatile of late, as­so­ci­ated with de­vel­op­ments in China, though other fi­nan­cial mar­kets have been rel­a­tively sta­ble,” he said.

Mr Stevens said main­tain­ing Aus­tralia’s of­fi­cial in­ter­est rate at 2 per cent, al­ready an all-time low, was “ap­pro­pri­ate”.

The “mod­er­ate ex­pan­sion in the econ­omy” was on track, he said.

HSBC Aus­tralia chief economist Paul Blox­ham said the RBA had not blinked at the seas of red on mar­ket boards, wild swings in com­mod­ity prices and fresh fears about the out­look for China’s econ­omy.

“If you look at the in­ter­na­tional en­vi­ron­ment, they still seem calm about it, not­ing some soft­en­ing in China,” Mr Blox­ham said.

“There was this ex­pec­ta­tion that they might dis­play a great deal more con­cern but it wasn’t there.”

The RBA slightly changed tack on the US Fed­eral Re­serve, say­ing the world’s most prom­i­nent cen­tral bank was ex­pected to lift in­ter­est rates there “over the pe­riod ahead”, rather than “later this year”, as it had es­ti­mated in Au­gust.

“I think that’s just the RBA be­ing cau­tious, rather than a change in their view,” Mr Blox­ham said.

West­pac chief economist Bill Evans said the Re­serve Bank board was less con­cerned about the Fed’s rate rise tim­ing, given the latest slide in the Aus­tralian dol­lar.

The Aus­tralian dol­lar fell 2.4 per cent in Au­gust de­spite a 1.5 per cent rise in com­mod­ity prices.

“Their re­liance on the Fed has weak­ened sig­nif­i­cantly thanks to that fall in the dol­lar, so it’s steady as she goes,” Mr Evans said, reaf­firm­ing that 2 per cent seemed the likely floor in rates.

Yesterday, the Aussie was al­most un­moved by the “on hold” call, buy­ing US71.08¢ late in the day.

For its next meet­ing, the RBA board will have a smor­gas­bord of data to con­sider, in­clud­ing to­day’s of­fi­cial fig­ures on eco­nomic growth for the three months to June.

Econ­o­mists ex­pect the na­tional ac­counts will show the econ­omy grew at about 0.5 per cent in the June quar­ter, half the pace recorded in the pre­vi­ous three months.

 ?? Pic­ture: Glenn Barnes ?? GOOD MEDICINE: Terry White phar­ma­cist Trevor Wang and cus­tomer Re­nae Berndt at New­stead store yesterday.
Pic­ture: Glenn Barnes GOOD MEDICINE: Terry White phar­ma­cist Trevor Wang and cus­tomer Re­nae Berndt at New­stead store yesterday.
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