Wed, Feb 05, 2020 - Page 10 News List

Australia keeps interest rates on hold

‘PREPARED’:RBA Governor Philip Lowe pointed to slightly improved jobs figures and an uptick in previously flagging housing markets as factors in the decision

AFP, SYDNEY

Australia’s central bank yesterday kept interest rates on hold at a record low, despite expected economic pain from the country’s devastating bushfire crisis and a coronavirus outbreak in China.

The Reserve Bank of Australia (RBA) has kept the cost of borrowing unchanged since lowering rates to 0.75 percent in October last year as part of efforts to extend a record 29-year run without a recession.

In a statement announcing rates would be kept on hold, RBA Governor Philip Lowe pointed to slightly improved jobs figures — with the unemployment rate declining to 5.1 percent in December — and an uptick in previously flagging housing markets as factors in the decision.

Australia’s economic fortunes are heavily dependent on the world’s No. 2 economy: China buys one-third of Australian goods and services.

Halting flights to limit the spread of the virus would strike at the heart of the education and tourism sectors, some of the nation’s most valuable exports.

A slowing Chinese economy also has less need for iron ore and the price is tumbling accordingly.

“In the short term, the bushfires and the coronavirus outbreak will temporarily weigh on domestic growth,” Lowe said, forecasting the economy to expand around 2.75 percent this year and 3 percent next year.

That is little changed from the bank’s November forecasts.

Lowe said that stronger global growth was expected this year, despite the outbreak and lingering US-China trade tensions, which he singled out as sources of “uncertainty” for the global economy.

However, many analysts believe rates could be cut further in the coming months.

Lowe said that the RBA board “remains prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

“Due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” he said.

As RBA would continue to monitor developments and remains prepared to ease monetary policy if needed, central banks in Asia face increasing calls to cut interest rates as they jump into action against the outbreak that is hammering tourism, travel and confidence across the region.

The People’s Bank of China on Monday trimmed some interest rates and injected massive liquidity into the financial system to shore up slumping markets.

Bank Indonesia said it was taking “bold” steps to bolster the nation’s currency and bonds.

Next up is Thailand, where there are growing calls for a move today, but no consensus estimate so far that a cut is coming.

By contrast, a reduction is expected tomorrow in the Philippines, which has reported the first death from coronavirus outside China.

India — which on the weekend announced a budget that underwhelmed those hoping for more stimulus — also sets policy tomorrow.

A recent spike in inflation is expected to keep the central bank sidelined, but some economists think it would have to act at coming meetings to spur a faltering economy.

Additional reporting by Bloomberg

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