Australian cbank set to keep rate at 4.75pc as economy slows
SUDNEY: The Reserve Bank of Australia is likely to keep its benchmark interest rate unchanged tomorrow as previous increases slow the economy and reduce the risk of faster inflation.
Governor Glenn Stevens and his board will leave the overnight cash rate target at 4.75 percent in Sydney tomorrow, according to all 25 economists surveyed by Bloomberg News.
Stevens told lawmakers in testimony 10 days ago that "there's unlikely to be anything from us imminently" on borrowing costs.
Australia's economy probably won't reach the central bank's forecast 3.5 percent growth in 2010 after it expanded last quarter at the slowest pace in almost two years, according to Citigroup Inc. Stevens' aim to contain prices was aided by some of the nation's largest banks boosting mortgage rates by almost double the Reserve Bank of Australia's quarter-percentagepoint increase on Nov. 2.
"With rates up in November, inflation under control and the economy losing momentum in the past quarter, clearly now is not the time to be lifting rates further," said Craig James, a senior economist at Commonwealth Bank of Australia in Sydney. debt crisis there."
Australia's currency declined to 99.01 U.S. cents as of 11:33 a.m. in Sydney from 99.31 cents in New York last week. It reached 99.39 cents on Dec. 3, the most since Nov. 22.
Traders bet there is a 90 percent chance Stevens will leave borrowing costs unchanged through the first quarter of next year, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange.
The currency declined 2.5 percent against the U.S. dollar over the past month as reports indicated a slowing economy.
Retail sales declined in October by the most since July 2009, according to data released last week, and a private report showed consumer confidence fell in November to a five-month low. Household spending accounts for about half of the nation's gross domestic product.
Business profits also dropped in the three months through September, the first quarterly decline in more than a year.
Lending to businesses slid 0.8 percent in October from September, according to the central bank.
The economy grew 0.2 percent in the third quarter from the previous period, the worst performance since a contraction at the end of 2008, a government report showed on Dec.
Stevens, in testimony to the House of Representatives Committee on Economics on Nov. 26, said while last month's decision to raise rates was finely balanced, it was typically better to move earlier than later.
"We have to balance that risk, obviously, against the risk of getting behind the game and historically, for many central banks including us, that has tended to be the mistake that we made," the governor told lawmakers.
Australia's currency reached parity with the U.S. dollar in October as traders bet the central bank would boost borrowing costs and the Federal Reserve prepared to pump additional stimulus into the world's largest economy.
The Reserve Bank of Australia is seeking to contain an expected acceleration in inflation as Australia experiences a resource investment boom that is prompting companies to increase hiring to meet demand from China. - PB News