Australia left its key interest rate unchanged at a record low Tuesday as the currency’s recent decline aids the economy by offering exporters some insulation against global trade ructions.
Reserve Bank Governor Philip Lowe kept the cash rate at 1.5 percent, as expected by all economists and where it’s stood since August 2016. The Australian dollar this week dropped to its lowest level in more than a year, driven by increasing anxiety that a trade war could send shock waves through commodity markets that the nation depends upon.
“One uncertainty regarding the global outlook stems from the direction of international trade policy in the United States,” Lowe said in a statement. “There have also been strains in a few emerging market economies, largely for country-specific reasons.”
The local dollar was little changed, trading at 73.42 U.S. cents at 2:33 p.m. in Sydney.
The RBA is prepared to be patient, making clear to firms and households it doesn’t intend to lift rates until the labor market tightens sufficiently to drive up wages and inflation. While the U.S. economy is motoring and likely to accelerate as tax cuts juice growth, Australia is the most China-dependent developed economy and the prospect of rising protectionism between the world’s biggest economies is a serious external threat.
Source : Bloomberg