Australian Economy

Australia keeps rates on hold

PUBLISHED : Tuesday, 02 April, 2013, 1:57pm
UPDATED : Tuesday, 02 April, 2013, 1:58pm

Australia’s central bank kept interest rates on hold at 3.0 per cent Tuesday, saying global downside risks appeared to have eased but domestic pressures were lingering.

Reserve Bank of Australia governor Glenn Stevens said there were a “number of indications that the substantial easing of monetary policy during late 2011 and last year is having an expansionary effect” but more time was needed.

The stubbornly high Australian dollar is squeezing local industries despite a drop in export prices, while households and businesses remained cautious.

Globally, however, the picture is improving, with the United States expanding at a “moderate” pace while growth in key market China had “stabilised at a fairly robust pace”, shoring up similar improvements across Asia.

“Global growth is forecast to be a little below average for a time, but the downside risks appear to be reduced,” said Stevens following the bank’s monthly meeting on monetary policy.

“At today’s meeting, the board judged that it was prudent to leave the cash rate unchanged.”

Stevens noted that growth had been close to long-term averages last year, underpinned by “very large increases” in mining spending, which offset weakness in other industries.

“Looking ahead, the peak in resource investment is drawing close. There will, therefore, be more scope for some other areas of demand to strengthen,” he said.

Inflation and wages were both contained, he added, supporting the bank’s view that an “accommodative stance” remained appropriate.

“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target over time,” he said.

The Australian dollar was little moved by the widely expected decision, dipping from US$1.0460 to US$1.0450.

Analysts said the commentary suggested there would have to be a significant deterioration in economic indicators before the RBA took action, with further cuts looking unlikely in the near term.

“The signs of improvement that we’re currently seeing would have to peter out or there would have to be some sort of global shock, and they certainly don’t seem in any rush to move,” said AMP Capital Investors economist Shane Oliver.

Rates have since December been at 3.0 per cent, a historic low not seen since the global financial crisis and well below their most recent peak of 4.75 per cent in October 2011.

Ratings giant Fitch affirmed Australia’s AAA credit rating last week, meaning it is among only a handful of nations with the coveted top-flight rating from all three major agencies including Moody’s and Standard & Poor’s.

The economy grew 0.6 per cent in the three months to December as exports lifted, but analysts have warned of a subdued picture overall.