HomeAFPAustralia rates on hold ahead of growth data

Australia rates on hold ahead of growth data

Australia’s central bank held interest rates at a record low 1.50 percent Tuesday ahead of quarterly economic growth data analysts expect to come in weak.

The Reserve Bank of Australia slashed 300 basis points from borrowing costs between November 2011 and August last year to support non-resources industries as the economy transitions out of a mining investment boom. It has remained on hold since then.

“The outlook continues to be supported by the low level of interest rates,” said central bank governor Philip Lowe of the widely-anticipated decision.

He said the transition to lower levels of mining investment was “almost complete” and business conditions had improved in parts of the economy not directly affected by the decline.

Growth in employment was expected to continue, he added, but wage growth remained low, which was “restraining growth in household consumption”.

Inflation was expected to increase gradually as the economy strengthens.

On housing, the bank said debt levels were growing faster than income but tougher regulatory measures targeting lending standards “should help address the risks associated with high and rising levels of indebtedness”.

Lowe noted signs that soaring house prices in Sydney and Melbourne were starting to ease.

The surging prices are widely seen as being behind the RBA’s decision to hold off on further rate cuts owing to worries it would stoke more debt-funded speculation and push the cost of housing even higher.

The Australian dollar climbed after the rate announcement, hitting 74.87 US cents, having earlier fallen to a low of 74.57 on weaker-than-expected exports data.

Economists said the bank would want to digest the growth data before making any concrete rate-related decisions, with gross domestic tipped to come in as low as 0.1 percent on-quarter and 1.5 percent on-year in the first three months of 2017.

Lowe acknowledged growth likely eased.

“Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures,” he said.

“Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above three percent.”

Australia’s economy rebounded strongly in the December quarter, dodging a technical recession on the back of buoyant exports, government investment and household spending.

The stellar bounceback followed a shock contraction of 0.5 percent in the three months to September — largely because of bad weather hampering construction and mining.


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