Australia’s central bank yesterday held interest rates steady at the all-time low of 1.75 percent following strong growth figures, while keeping an eye on low inflation.
The Reserve Bank of Australia (RBA) cut the official cash rate from 2 percent last month to spur the economy, but gave little indication of further easing in a statement.
“The Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time,” RBA Governor Glenn Stevens said.
Lower-than-expected inflation prompted the central bank to make its first rate cut in a year last month, a move seen as keeping a cap on further appreciation in the Australian dollar.
The central bank said inflation remained “quite low” and was expected to stay that way for some time given subdued growth in labor costs and low cost pressures elsewhere in the world.
The Australian dollar rose on the news, from US$0.73 a few minutes before the announcement to US$0.74 soon after.
Australia is enjoying growth, which outstrips some of the world’s most advanced economies, and last week defied market forecasts by reporting an annual year-on-year reading of 3.1 percent in the first quarter on the back of strong exports.
The central bank said that lower interest rates had supported domestic demand and were helping trade — factors which were assisting the economy to make needed adjustments as it exits a mining investment boom.
Stevens said recent data suggested overall growth was continuing despite a large decline in business investment, but added there is room for optimism in areas outside exports.
“Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend,” he said. “Labor market indicators have been more mixed of late, but are consistent with continued expansion of employment in the near term.”
Economists had widely expected rates to stay on hold after last month’s cut, potentially until the next inflation data due in late July.
“The RBA were never going to cut the cash rate today, but there was always a strong possibility of a clearer easing bias in the last paragraph,” chief market strategist at IG Chris Weston said, referring to the bank’s monetary statement.
“That hasn’t occurred and the RBA have delivered a statement that is fairly dull, uneventful and could give some renewed belief to Australian dollar bulls,” he said.
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