Australia RBA holds rates at record low, keeps steady view

Aussie dollar rises after RBA statement
Aussie dollar rises after RBA statement   

Australia's central bank kept interest rates steady for the 10th policy meeting in a row on Tuesday, and seemed set to stay on the sidelines for some time to come as the economy weathers a cooling down in mining investment.

The local dollar hopped higher as the Reserve Bank of Australia (RBA) stopped short of actively trying to talk the currency lower, noting only that it was high by historical standards and thus not as helpful in supporting the economy.

"Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time," stated RBA Governor Glenn Stevens, in what has become a monthly mantra.

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"On present indications, the most prudent course is likely to be a period of stability in interest rates."

Financial markets suspect this "period" could be very long indeed. The bank's last rate move was in August 2013, but interbank futures imply little chance of another change until late in 2015.

All 24 analysts polled by Reuters had expected rates to stay at 2.5 percent this month. The vast majority assume the next move will be up, but not until the first quarter of next year at the earliest.

The central bank seemed to close the door on another easing back in February, amid mounting evidence that record-low rates were filtering through to consumer demand and housing.

Lisa Maree Williams | Bloomberg | Getty Images

Data out on Tuesday showed home prices across Australia's major cities rebounded in June to be up 10.1 percent on the year, a windfall for household wealth that has helped support spending in the face of sluggish wage growth.

Carefully neutral

Yet surveys of consumer confidence took a nasty turn in May after the Liberal National government of Prime Minister Tony Abbott outlined plans for higher taxes and welfare cuts in a tough 2014/15 budget.

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Analysts are worried that fall in confidence spilled over into spending with retail sales for May at risk of showing the first decline in a year when figures are published on Thursday.

The RBA itself has sounded a little less confident recently, conceding it was uncertain whether low rates alone could fully offset a pullback in mining investment after a decade-long boom.

A stubbornly high local dollar and lower prices for some of Australia's major commodity exports are further complicating the task for policymakers.

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Still, if the bank does harbor concerns they were not especially evident in Tuesday's statement which was almost a carbon copy of the past few outlooks.

"The RBA has highlighted a number of familiar themes in terms stronger housing and consumption and exports and overall continuing to highlight a pretty well behaved inflation," said Su-Lin Ong, a senior economist at RBC Markets.

"Nothing really to rock the boat, the bank looks pretty comfortably on hold."

This story is developing. Please check back for further updates.

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