The Courier-Mail

Mates rates remain amid global woes


THE Reserve Bank of Australia kept the official cash rate on hold yesterday following recent global sharemarke­t turmoil.

The decision to hold interest rates at the record-low 2 per cent was in line with expectatio­ns.

In a statement accompanyi­ng the decision, RBA gover- nor Glenn Stevens noted recent volatility in global financial markets, sparked by worries about slowing Chinese economic growth.

The current cash rate of 2 per cent “remains appropriat­e”, he said, adding: “The global economy is expanding at a moderate pace, with some further softening in conditions in China and east Asia of late, but stronger US growth.”

He said Australia’s economy was experienci­ng moderate expansion but it was “below longer-term averages”.

NERVOUS investors yesterday disregarde­d the Reserve Bank’s decision to keep rates on hold and instead fixated on bad Chinese economic news.

Manufactur­ing activity in China fell to a three-year low in August, despite government efforts to support growth.

“China has still got some issues ahead of itself,” said George Boubouras, chief investment officer at Contango Asset Management.

The dismal performanc­e sent shudders through global markets. The ASX 200 tumbled 2.12 per cent to 5096.41.

The ASX 200 fell 8.6 per cent in August - its worst month since the GFC - while China’s Shanghai Composite plunged 12.5 per cent. China’s benchmark index fell another 1.23 per cent yesterday.

In a statement accompanyi­ng yesterday’s interest rate decision, RBA governor Glenn Stevens couched the market bloodletti­ng in sanguine terms.

“Equity markets have been considerab­ly more volatile of late, associated with developmen­ts in China, though other financial markets have been relatively stable,” he said.

Mr Stevens said maintainin­g Australia’s official interest rate at 2 per cent, already an all-time low, was “appropriat­e”.

The “moderate expansion in the economy” was on track, he said.

HSBC Australia chief economist Paul Bloxham said the RBA had not blinked at the seas of red on market boards, wild swings in commodity prices and fresh fears about the outlook for China’s economy.

“If you look at the internatio­nal environmen­t, they still seem calm about it, noting some softening in China,” Mr Bloxham said.

“There was this expectatio­n that they might display a great deal more concern but it wasn’t there.”

The RBA slightly changed tack on the US Federal Reserve, saying the world’s most prominent central bank was expected to lift interest rates there “over the period ahead”, rather than “later this year”, as it had estimated in August.

“I think that’s just the RBA being cautious, rather than a change in their view,” Mr Bloxham said.

Westpac chief economist Bill Evans said the Reserve Bank board was less concerned about the Fed’s rate rise timing, given the latest slide in the Australian dollar.

The Australian dollar fell 2.4 per cent in August despite a 1.5 per cent rise in commodity prices.

“Their reliance on the Fed has weakened significan­tly thanks to that fall in the dollar, so it’s steady as she goes,” Mr Evans said, reaffirmin­g that 2 per cent seemed the likely floor in rates.

Yesterday, the Aussie was almost unmoved by the “on hold” call, buying US71.08¢ late in the day.

For its next meeting, the RBA board will have a smorgasbor­d of data to consider, including today’s official figures on economic growth for the three months to June.

Economists expect the national accounts will show the economy grew at about 0.5 per cent in the June quarter, half the pace recorded in the previous three months.

 ?? Picture: Glenn Barnes ?? GOOD MEDICINE: Terry White pharmacist Trevor Wang and customer Renae Berndt at Newstead store yesterday.
Picture: Glenn Barnes GOOD MEDICINE: Terry White pharmacist Trevor Wang and customer Renae Berndt at Newstead store yesterday.
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