Australia kept interest rates unchanged Tuesday, betting that a rebound in property prices will increase household wealth and confidence and see consumers more willing to part with their cash.
Reserve Bank chief Philip Lowe and his board left the cash rate at 0.75% in Sydney as they monitor the ongoing impact of three reductions since June. The decision was predicted by money markets and economists and comes as policy makers struggle to accelerate economic growth and rekindle inflation.
“Given global developments and the evidence of the spare capacity in the Australian economy, it is reasonable to expect that an extended period of low interest rates will be required in Australia,” Governor Lowe said in a statement announcing the decision. The board “is prepared to ease monetary policy further if needed to support sustainable growth in the economy.”
Australia gained much-needed breathing space in its easing cycle when the Federal Reserve signaled last week it was pausing rate cuts. That is likely to cool upward pressure on an Aussie dollar that Lowe has struggled to contain in order to keep his nation’s exporters competitive and hiring.
While the RBA’s three-quarters of a percentage point of rate cuts -- the same as the Fed -- and Australian government tax rebates have failed to lift flagging consumer spirits, monetary policy easing has been a boon for housing.
Prices in Melbourne surged 2.3% in October, the biggest monthly gain in almost 10 years, and have jumped 6% since bottoming in May. Sydney isn’t far behind, advancing 1.7% last month and rebounding 5.3% since May.
Yet that wealth effect hasn’t translated into improved sentiment: consumer confidence has fallen in four of the five months since the RBA resumed easing; retail sales, meanwhile, are miserable and rose just 0.2% in September from a year earlier and actually fell 0.1% in volume terms in the third quarter.
Source : Bloomberg