Australian central bank keeps interest rates at 2.5%

GMT 10:37 2014 Tuesday ,04 November

Arab Today, arab today Australian central bank keeps interest rates at 2.5%

Australian central bank
Sydney - AFP

Australia's central bank Tuesday kept interest rates at a record low 2.5 percent, maintaining an unchanged outlook for the country's economy as it continued to call for a weaker currency.
The Reserve Bank of Australia has kept the cash rate steady since August 2013, and since February has flagged a "period of stability" in monetary policy as the economy transitions away from mining-led growth.
"In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," the RBA said in a statement following its monthly board meeting.
"On present indications, the most prudent course is likely to be a period of stability in interest rates."
The Australian dollar, which was trading just below 87 US cents before the statement was released, edged up slightly to 87.30 US cents.
"Lower for longer is the short summary," Westpac's senior currency strategist Sean Callow told AFP of the central bank's stance.
"The 'period of stability' has proven to be longer than they thought at the start of the year.
"While rates have been unchanged, the balance of rates around the outlook has moved towards weaker global outlook and certainly a lot less need to raise interest rates."
The central bank strengthened its rhetoric against the local currency slightly, saying that the Australian dollar "remains above most estimates of its fundamental value, particularly given the further declines in key commodity prices in recent months".
- Unprecedented boom -
It said in October that the exchange rate remained "high by historical standards". The Australian dollar hit a four-year low of 86.43 US cents in October.
While an unprecedented boom in mining investment has helped the economy avoid a recession for more than two decades, an expected sharp fall-off next year had seen the Reserve Bank maintain accommodative settings to stimulate growth in non-resources industries.
The strength of the Australian dollar, which had remained above parity against its US counterpart for the best part of two years before declining last year, has also been blamed for the difficulties experienced by export-facing industries.
Barclays' chief economist for Australia Kieran Davies told AFP the Reserve Bank would be watching the US Federal Reserve to see if it will raise interest rates next year after ending its quantitative easing stimulus this month.
"I think (the RBA) will be hoping that the Fed is confident enough to raise rates next year and that should see a stronger US dollar and a weaker Aussie off the back of that," Davies said.
"I think the RBA would be quite pleased if it plays out that way, because they've argued that they felt that the market's not pricing in enough risk of higher US rates."
The Fed announced it would end its quantitative easing programme of buying bonds in late October, after pumping trillions of dollars into financial markets in a move drew investors to higher-yielding currencies like the Australian dollar.
The Reserve Bank's decision came as the Australian Bureau of Statistics revised up its September unemployment rate from 6.1 percent to 6.2 percent, the highest in almost 12 years.
The statistics bureau will release its October jobless rate on Thursday.


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