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Australia Holds Rates, Relying on Past Cuts to Support Growth


Tuesday, 1 December 2015 10:54 WIB

AustraliaRBA


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Australia’s central bank extended its interest-rate pause for a seventh month, relying on past cuts to sustain the economy while retaining policy ammunition should it need it next year.

Reserve Bank of Australia Governor Glenn Stevens and his board kept the cash rate at a record-low 2 percent Tuesday, as forecast by all 29 economists. The decision follows an improvement in consumer confidence while employment in October grew the most since March 2012, suggesting there was no immediate need to add further stimulus.

“The governor is unconvinced that lower rates will boost activity,” Bill Evans, chief economist at Westpac Banking Corp. in Sydney, said before the decision. “But, undoubtedly downside risks are to the fore.”

Policy makers have reduced borrowing costs by 2.75 percentage points since late 2011 to bolster industries outside mining, which is about half way through the unwinding of an investment boom. While housing construction has surged in the low-rate environment, other firms have proved more reluctant to spend, betting they can meet demand from highly indebted households via existing capacity.

That may be changing as credit data released Monday showed lending to businesses rose 6.6 percent in October from a year earlier, the biggest gain in six-and-a-half years. The RBA maintains that the economy is traveling pretty well given the scale of the drop in mining investment, with the unemployment rate stabilizing at a little under 6 percent.

Since the RBA’s November meeting, the Australian currency has been steady while prices of the country’s largest export, iron ore, have fallen. The most-active iron ore futures in Singapore Monday sank below $40 a metric ton for the first time on concern that the economic slowdown in China will cut demand as supplies from the largest miners climb.

The economy has also grown at below its average for six of the past seven years, and third-quarter gross-domestic product data due Wednesday is predicted to extend that run, with economists predicting a 2.4 percent increase from a year earlier after a 2 percent expansion in the second quarter.

“The acceleration in the quarter will most likely be due to a rebound in the contribution from net exports,” said Paul Brennan, chief economist for Australia at Citigroup Inc. “Domestic demand could best be flat with a risk of being negative and with a likely further fall in the terms of trade nominal income growth could remain weak”.

Source: Bloomberg


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