Australia central bank holds rates, eyes trade spat

SYDNEY: Australia’s central bank kept interest rates on hold for its 21st-straight meeting yesterday as consumer spending and inflation remain weak, while it also cited uncertainty about global trade tensions.

The Reserve Bank of Australia slashed the cash rate from November 2011 to August 2016 to a record low of 1.50 per cent to boost the economy as it transitioned away from an unprecedented mining investment boom.

It has sat on the sidelines since then, with high household debt and slow wages growth affecting consumer spending even as business conditions and investment improve.

“The low level of interest rates is continuing to support the Australian economy,” RBA governor Philip Lowe said in a statement after its monthly board meeting.

“Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”

Inflation has also remained soft, although the central bank sounded an optimistic note about the recent rise in labour force participation and strong growth in employment.

“There is a Groundhog Day feel to RBA meetings at the moment,” Commonwealth Bank of Australia senior economist Gareth Aird said.

“The RBA’s decision to leave policy unchanged today was no surprise. And the governor’s statement confirms that a rate rise is still some way off.”

The central bank eased its warnings about the Australian dollar – which has weakened against its US counterpart in recent months – and dropped comments about the risks of an appreciating currency.

But it was less optimistic about the economic climate, noting that there was “uncertainty regarding the global outlook (stemming) from the direction of international trade policy in the US”.

The housing market, which has boomed in recent years and sent property prices soaring, has softened of late, making the RBA less likely to tighten monetary policy in the near-term, economists said.

“Growing concerns about the global trade dispute and the deepening domestic housing downturn mean that the RBA will probably leave interest rates at 1.5 per cent... until late next year,” Capital Economics’ chief Australia and New Zealand economist Paul Dales said.

“While a rate cut remains improbable, it is becoming increasingly likely that interest rates may not be raised until 2020.” — AFP