Wed, Oct 04, 2017 - Page 10 News List

Australian central bank keeps interest rates on hold

AFP, SYDNEY

The Reserve Bank of Australia (RBA) yesterday left interest rates at a record low, with the board upbeat about the economy while sounding a warning about the strength of the Australian dollar.

The central bank has slashed rates by 300 basis points since November 2011 to 1.50 percent as the country wrestles with its transition away from an unprecedented boom in mining investment.

However, it has left rates on hold since August last year and is yet to show its hand regarding its next move.

RBA Governor Philip Lowe said the Australian economy had shrugged off the sluggish start to the year, boosted by government and consumer spending, with growth of 0.8 percent in the June quarter.

“This outcome and other recent data are consistent with the bank’s expectation that growth in the Australian economy will gradually pick up over the coming year,” he said after a monthly board meeting. “Over recent months there have been more consistent signs that non-mining business investment is picking up. A consolidation of this trend would be a welcome development.”

However, the bank remained concerned about high levels of housing debt in cities where property prices have soared, at a time when wages growth remains low.

It also noted the ongoing strength of the Australian dollar, which was keeping inflation below its target band.

“The higher exchange rate is expected to contribute to continued subdued price pressures in the economy,” Lowe said. “It is also weighing on the outlook for output and employment.”

“An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast,” he said.

The Australian dollar fell following the rate announcement, dropping below US$0.78 for the first time since mid-July and remaining at that level by mid-afternoon.

AMP Capital chief economist Shane Oliver said the RBA statement “continues to imply a neutral short term bias on interest rates.”

“Basically the RBA and official interest rates remain stuck between a rock and a hard place,” he said. “Improving global growth, strong business confidence and jobs growth, the RBA’s own expectations for a growth pick up and already high levels of household debt argue against a rate cut.”

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