Australian interest rates on hold at 2.5%

GMT 09:24 2014 Tuesday ,05 August

Arab Today, arab today Australian interest rates on hold at 2.5%

Australia's central bank
Sydney - AFP

Australia's central bank Tuesday held interest rates at a record low of 2.5 percent, marking a year since it last loosened monetary policy as it seeks to boost non-mining growth.
The Reserve Bank of Australia flagged "a period of stability" in the cash rate as it cautioned that economic growth would likely be "a little below trend" in the year ahead.
In a statement it also said investment spending in the resources sector was starting to decline "significantly" and noted the strength in the local currency.
"In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," governor Glenn Stevens said.
The Australian dollar looked through the statement, remaining stable at about 93.27 US cents.
The central bank's unchanged position was widely expected, with a majority of economists tipping the cash rate to remain at 2.5 percent for several more months.
"It was broadly expected that the bank would stick to the message it's been giving now for at least three or four months," Citi's chief economist for Australia Paul Brennan said.
"In particular, the last two paragraphs of the statement were totally unchanged, so that suggests that the bank is very happy with leaving rates where they are and there is a quite a high bar to changing monetary policy."
The central bank has slashed the cash rate eight times, down from 4.5 percent, since November 2011, ahead of an expected sharp fall in mining investment following an unprecedented boom in the sector.
- 'Overheat property market' -
The lower interest rates were meant to encourage growth in non-resources industries, and have helped to support a boom in the housing market, boosting property prices.
Brennan said the stability in the RBA's monetary policy settings, which was reflected in the mostly unchanged statement, was in part due to the risks that could come from raising or lowering interest rates.
A further cut in the cash rate could overheat the already booming residential property market and push inflation above the central bank's target range of 2.0 to 3.0 percent.
The annual rate of inflation in the year to June was 3.0 percent, according to official figures released last month.
On the other hand, higher rates could make the Australian dollar more attractive to international investors and further strengthen it.
The RBA as repeatedly noted that the strong local dollar has hobbled the economy's transition away from its dependence on mining.
"Everything that you hear from (the RBA) about the frustrations with the strength of the Aussie dollar seems to centre on the root cause being the monetary policy settings elsewhere in the world, and the US in particular," said National Australia Bank currency strategist Ray Attrill.
He added that the central bank would be looking for a normalisation of US monetary policy -- which would see the Federal Reserve raise interest rates and lead to the strengthening of the American dollar -- as a catalyst for a decline in the Australian currency.
A weaker Australian dollar would then give the Reserve Bank more room to adjust its policy settings.
The central bank also repeated in the statement its comments about the "unusually low" level of volatility in financial markets, which has helped keep the Australian dollar attractive in the carry trade.
The carry trade sees investors sell a low-yielding currency to buy another unit that offers a higher interest rate.


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