Australia's central bank keeps rates low, consumers encouraged

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Australia's central bank kept interest rates at record lows for a 14th straight policy meeting on Tuesday, saying the stimulus was justified given the outlook for sub par growth even as consumers showed signs of opening their wallets.

The result surprised no one but the local dollar did edge higher as the Reserve Bank of Australia (RBA) refrained from escalating its verbal campaign for a lower currency.

"Overall, the Bank still expects growth to be a little below trend for the next several quarters," said RBA Governor Glenn Stevens, in what was a carbon copy of recent statements.

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

Read MoreAustralia retail sales beat forecast in September

Interbank futures had priced in no chance of a move this week, while a Reuters poll of 24 analysts had found all expected rates to stay on hold. All also suspect the next move will be up but not until far into 2015.

While low rates have supported home building and consumer wealth, the jury is still out on whether they alone will be enough to offset the drag from falling investment in the mining sector as a decade-long boom winds down.

There are some hopeful signs. Figures from the Australian Bureau of Statistics out on Tuesday showed retail sales expanded at the fastest pace in 19 months in September as consumers went on a buying frenzy for Apple's new phones.

Spending jumped 1.2 percent, far outstripping forecasts of a 0.4 percent rise. Adjusted for inflation, sales climbed 1 percent for the whole third quarter, suggesting household consumption made a useful contribution to economic growth.

Read MoreAustralia's economy: from mining to building

"It certainly gets us off to a good start," said Michel Blythe, chief economist at Commonwealth Bank.

"It does suggest whatever post-budget pullback we might have seen on the consumer side is over and demonstrates the ability of new items like the iPhone 6 to kick things along."

A$ above fair value

Less helpful was a widening in the country's trade deficit to A$2.26 billion in September as falling prices for key commodities restrained export earnings even as volumes improved.

The steep decline in prices for commodities, notably iron ore, is a major reason the RBA has been agitating for a greater drop in the local currency.

Read MoreHave the Aussie dollar bears won the argument?

In his statement on Tuesday, Stevens said the currency was still above most estimates of its fundamental value, but stopped short of calling for a further drop.

The labor market was also looking a little less healthy after revisions by the Australian statistician.

Following problems with its jobs survey, the ABS chose to adopt an entirely new method of seasonal adjustment and to restate the figures back to December last year.

The new series estimated 23,700 jobs had been lost in September, compared to the initial estimate of a fall of 29,700. However, August was restated to show a drop of 9,000, compared to a previously stated rise of 32,100.

Read MoreConfusion aside, Australian job market still soft

The unemployment rate was now a tenth higher at 6.2 percent in September and 6.1 percent for August.

"The strength in retail hints at some spillover from the housing market, but the weakness of the labor market continues to work in the opposite direction, weighing on confidence and wage growth," said Michael Turner, a strategist at RBC Capital Markets.

"There is little reason to think that the 2.50 percent cash rate will not persist until well into 2015."