Australia rates held at 2.25% for 2nd month, po­ten­tial for fur­ther cut­backs


Australia’s cen­tral bank Tues­day left in­ter­est rates on hold at 2.25 per­cent for the sec­ond suc­ces­sive month, but kept the door open for fur­ther cuts as the econ­omy con­tin­ues to strug­gle.

The Re­serve Bank of Australia (RBA) said af­ter its monthly board meet­ing that it was “ap­pro­pri­ate to hold in­ter­est rates steady for the time be­ing.”

In Fe­bru­ary the bank slashed its of­fi­cial cash rate by 25 ba­sis points to a record-low of 2.25 per­cent — its first re­duc­tion in 18 months.

“Fur­ther eas­ing of pol­icy may be ap­pro­pri­ate over the pe­riod ahead, in or­der to foster sus­tain­able growth in de­mand and in­fla­tion con­sis­tent with the tar­get,” the RBA said in a state­ment.

The Aus­tralian dollar strength­ened by al­most 1 U.S. cent to trade at 77.11 U.S. cents. The “Aussie” has taken a hit in re­cent months as com­mod­ity prices plunge while in­vestors have been bet­ting on the U.S. Fed­eral Re­serve to hike in­ter­est rates, which boosts the U.S. dollar.

The Aus­tralian econ­omy has strug­gled as it ex­its an un­prece­dented min­ing in­vest­ment boom that helped it avoid re­ces­sion for more than two decades.

With in­fla­tion low, the econ­omy ex­pand­ing at a be­low-trend pace and the un­em­ploy­ment rate at multi-year highs, the cen­tral bank cut the cash rate in Fe­bru­ary to spur growth.

The bank’s de­ci­sion to hold off an­other cut sur­prised mar­kets and the bench­mark S&P/ASX200 in­dex pared most of its morn­ing gains and failed to end above the psy­cho­log­i­cal 6,000-point mark.

But a ma­jor­ity of econ­o­mists had fore­cast the cen­tral bank to re­main on the side­lines to see whether the last eas­ing was a suf­fi­cient boost to the econ­omy. Most ex­pected a cut in May in­stead.

Fur­ther Cut Likely

“They’ve still main­tained their eas­ing bias,” JP Mor­gan se­nior econ­o­mist Ben Jar­man told AFP.

“For a board that took a long time to get over the line to cut again in Fe­bru­ary, they ob­vi­ously want to give the last rate cut some time to breathe life into the econ­omy.

“They are sit­ting back and look­ing for signs of that oc­cur­ring.”

While econ­o­mists fear the low rates could over­heat the hous­ing mar­ket, the RBA said it was cau­tiously op­ti­mistic about it, not­ing that although prices were still ris­ing sharply in Syd­ney, trends were var­ied across other cities.

The RBA added that the Aus­tralian dollar — which it has long said needed to decline more to boost growth in non- min­ing sec­tors — was likely to de­pre­ci­ate fur­ther as com­mod­ity prices weaken.

The bank cau­tioned that over­all do­mes­tic de­mand was “quite weak.” while eco­nomic data was point­ing to soft growth.

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