Australia’s cenbank keeps rates on hold

‘Low level of rates continuing to support economy’

SYDNEY, Nov 7, (AFP): Australia’s central bank left interest rates at a record low Tuesday after mixed signals from the domestic economy in recent weeks.

The Reserve Bank slashed rates by 300 basis points since November 2011 to 1.50 percent, but has left them on hold since August last year.

Stagnant wage growth and a weak consumer price index continue to be issues preventing the bank from lifting rates.

“The low level of interest rates is continuing to support the Australian economy,” said Reserve Bank governor Philip Lowe.

“Taking account of the available information, the board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

The board met after conflicting data in recent weeks.

On the positive side, the global economy and infrastructure outlook remain positive while rampant house price growth has been slowing in line with a “soft landing”.

The unemployment rate has also fallen to 5.5 percent.

But third quarter inflation data was slightly below expectations and September retail sales came in weak. A pick-up in wage growth also remains elusive.

“Wage growth remains low in most countries, as does core inflation,” admitted Lowe.

“Headline inflation rates are generally lower than at the start of the year, largely reflecting the earlier decline in oil prices.”

Many economists see no rate hike until the second half of next year with some even forecasting that the wait could last until 2019.

“Although the Reserve Bank of Australia left interest rates at 1.5 percent for the 15th month today, we don’t think it is placing enough weight on the recent weakening in retail sales and softer news on inflation,” said Capital Economics in a note.

“If GDP growth and underlying inflation stay below three percent and two percent respectively next year as we expect, then the RBA probably won’t raise interest rates until late in 2019.”

The Australian dollar jumped following the rate announcement, trading at 76.92 US cents after falling ahead of the decision.

Lowe said the appreciating Australian dollar was “expected to contribute to continued subdued price pressures in the economy”.

“It is also weighing on the outlook for output and employment,” he added.

“An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”