Australia's central bank holds interest rate at 2%

GMT 07:32 2015 Tuesday ,07 July

Arab Today, arab today Australia's central bank holds interest rate at 2%

Australia's economy
Sydney - AFP

Australia's central bank Tuesday kept interest rates on hold at 2.0 percent for the second-straight month, saying accommodative monetary policy was needed with economic growth subdued.

The Reserve Bank of Australia has slashed rates by 250 basis points since November 2011 to support the resources-dependent economy as it experiences a sharp fall in mining investment, after an unprecedented boom helped avoid a recession for more than two decades.

In a statement mostly identical to the previous month, Reserve Bank governor Glenn Stevens said it was appropriate to leave interest rates unchanged.

"Information on economic and financial conditions to be received over the period ahead will inform the board's assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target," he said in the statement.

The RBA last cut the cash rate by 25 basis points each in February and May.

Stevens continued his call for a weaker exchange rate despite the Australian dollar's recent falls against its US counterpart, as investors pile into safe-haven currencies such as the greenback owing to market ructions in Greece.

- Watching and waiting -

"The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies," he said.

"Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices."

The local unit hardly moved on the RBA's decision, with the currency buying 74.74 US cents.

"There were very little changes in the statement and for now, the RBA is watching and waiting and hasn't any particular need to guide the markets away from their current expectations," National Australia Bank's senior current strategist Emma Lawson told AFP.

"They are watching and seeing what's happening globally but they're so far not concerned."

The governor briefly mentioned the fluctuations in markets as a result of the turmoil in Greece and China, but pointed out that long-term borrowing rates "remain remarkably low".

Australia's economy has been growing below-trend in recent months as non-mining sectors struggle to fill the gap left by resources industries. Businesses have been reluctant to invest, while government spending remains soft.

The unemployment rate has edged higher and hovered around a decade-high of 6.0 percent, wages growth has been slow and inflation contained within the central bank's 2.0-3.0 percent target band.

Stevens noted the elevated levels of the jobless rate but added that it "has been little changed recently".

Deutsche Bank senior economist Phil O'Donaghoe said the comments could point to a possible end of the rate cutting cycle.

"The RBA are trying to portray a story that while they are keeping an easing bias, there's enough evidence, certainly on the labour market side, that maybe two percent is as low as we're going to need to go here," O'Donaghoe said.

Any RBA moves were more likely to be affected by offshore developments, such as when the United States' Federal Reserve raises near-zero interest rates, O'Donaghoe said. Speculation is currently focused on a rise as early as September.

Deutsche Bank forecasts Australian interest rates will remain on hold at 2.0 percent this year and in 2016.

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