Monday , October 23 2017

RBA keeps interest rates steady

People make their way through the Martin Place during lunch time in the central business district of Sydney on November 1, 2016. Australia's central bank held interest rates at a record low of 1.50 percent and indicated what analysts called a "wait and see" approach to future monetary policy easing despite a run of soft inflation figures. / AFP PHOTO / SAEED KHAN

 

Sydney / AFP

Australia’s central bank on Tuesday held interest rates at a record low of 1.50 percent and indicated what analysts called a “wait and see” approach to future monetary policy easing despite a run of soft inflation figures.
The country is transitioning away from a resources investment boom that has helped the economy mark a quarter of a century of unbroken growth in the second quarter of this year.
But with uneven growth in the labour market and non-mining sectors — and a recent spate of weak inflation data –the Reserve Bank of Australia (RBA) has slashed interest rates twice since May.
“The board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” RBA governor Philip Lowe said in a statement after the monthly board meeting.
The decision to remain on the sidelines was mostly tipped by analysts. The Australian dollar edged higher up to 76.5 US cents from 76.2 US cents after the statement was released.
Australia like other global economies is facing subdued consumer price rises owing to tepid global trade and weak wage growth. Core inflation came in at 1.3 percent in the September quarter, well off the RBA’s target range of 2.0-3.0 percent.
Lowe emphasised previously that he was flexible about the policy towards inflation and in the statement he noted that the consumer price index was tracking broadly in line with the RBA’s projections.
A downside surprise could therefore trigger another rate cut, JP Morgan economist Tom Kennedy told AFP.
“Wait and see is probably the correct way to describe it,” Kennedy said of the decision to keep its powder dry.
“If any of this activity data softens, then the RBA is going to be concerned that you might get another undershoot in inflation.
“For us the bottom line is that they’ve probably got more to do… it makes the tolerance for downside surprises very low.”
At the same time, question marks remain over the labour market. While the jobless rate fell to a three-year low of 5.6 percent in September, analysts have warned of underemployment with an increase in part-time roles.

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