Aus­tralia holds in­ter­est rates econ­omy en­dures soft patch

Kuwait Times - - BUSINESS -

Aus­tralia’s cen­tral bank held in­ter­est rates at a record low yes­ter­day as the econ­omy en­dures a soft patch while wage growth stut­ters, shun­ning in­di­ca­tions of a move to tighter mon­e­tary pol­icy else­where. The Re­serve Bank of Aus­tralia has sat on the side­lines since Au­gust, hav­ing cut bor­row­ing costs 300 ba­sis points since Novem­ber 2011 to sup­port the econ­omy as an un­prece­dented min­ing in­vest­ment boom ends.

“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,” RBA gov­er­nor Philip Lowe said in a state­ment. The RBA’s neu­tral stance dis­ap­pointed an­a­lysts, who had tipped a more hawk­ish out­look in line with other re­cent state­ments from cen­tral banks in Canada and Bri­tain. The Aus­tralian dol­lar slipped al­most half a US cent to US$0.7638.

“I think they are just ac­knowl­edg­ing that they see the risks as bal­anced,” JP Mor­gan economist Henry St John said, cit­ing an im­prov­ing la­bor mar­ket and var­ied hous­ing mar­ket con­di­tions across the coun­try. “Our view is that (go­ing for­ward) we might see some fur­ther de­te­ri­o­ra­tion in the ac­tiv­ity data, and that would cause them to shift to a more dovish stance.”

While Aus­tralia marked 26 years with­out a re­ces­sion af­ter the econ­omy grew 0.3 per­cent on-quar­ter in Jan­uary-March, the 1.7 per­cent an­nual rate of ex­pan­sion was the weak­est since 2009. The coun­try is also ex­pe­ri­enc­ing slow growth in wages and house­hold in­come, un­der­em­ploy­ment and high lev­els of house­hold debt, fu­elling spec­u­la­tion that rates will re­main un­changed for some months.

Lowe ac­knowl­edged the slow­down in eco­nomic growth but said it was “partly re­flect­ing tem­po­rary fac­tors”. “The Aus­tralian econ­omy is ex­pected to strengthen grad­u­ally, with the tran­si­tion to lower lev­els of min­ing in­vest­ment fol­low­ing the min­ing in­vest­ment boom al­most com­plete,” he said. A boom­ing hous­ing mar­ket, par­tic­u­larly in Syd­ney and Mel­bourne, has also made a fur­ther cut in rates ap­pear less likely, econ­o­mists said, while macro-pru­den­tial tools have been used to tighten lend­ing, par­tic­u­larly to in­vestors.

“There was noth­ing in to­day’s state­ment to shift our view that rates will stay on hold for some time,” Com­mon­wealth Bank of Aus­tralia economist Kristina Clifton said in a note. She added that while eco­nomic growth was ex­pected to lift by 2018, a siz­able part of it would come from higher liq­ue­fied nat­u­ral gas (LNG) pro­duc­tion, which is not ex­pected to gen­er­ate much em­ploy­ment or in­fla­tion. The RBA also said in May that in­creases in un­der­ly­ing in­fla­tion-which strips out volatile items-over the next year or two would be “quite grad­ual” be­cause of low wages growth. “We need to see the RBA lift th­ese in­fla­tion fore­casts ma­te­ri­ally be­fore rate rises are back on the ta­ble any­time soon,” Clifton added. —AFP

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