Central Banks

Australia central bank sees rates on hold for some time


Australia's central bank said economic developments in the past month had done nothing to sway its resolve to keep interest rates steady for a while, noting there had been further signs that low borrowing costs were supporting growth.

In the minutes of its April 1 policy meeting, the Reserve Bank of Australia (RBA) again said the local dollar was high by historical standards, and that its recent appreciation meant the exchange rate was now less effective in helping the economy achieve balanced growth.

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"At recent meetings, the Board had judged that it was prudent to leave the cash rate unchanged and members noted that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected," the minutes said.

"Developments over the past month had not changed that assessment." The RBA kept its cash rate at a record low 2.5 percent, where it has been since August. In all, the central bank has slashed 225 basis points off its benchmark rate since late 2011.

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The futures market, having all but priced out the risk of further cuts this year, was now toying with the idea of an interest rate rise by the end of 2014.

The minutes, which were pretty much a carbon copy of the March ones, showed board members noted the persistent strength of the local currency.

"Despite commodity prices falling further over the past month, the exchange rate has appreciated a little further," the minutes showed.

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"While the decline in the exchange rate from its highs a year earlier would assist in achieving balanced growth in the economy, this would be less so than previously expected given the rise of the exchange rate over the past few months."

On the domestic economy, board members began their discussion with the labour market. They were cautious about the recent upbeat employment gains and felt the jobless rate is still likely to edge higher for a time.

They saw economic growth constrained by falling mining investment and weak public demand but were also heartened by promising signs in other parts of the economy, particularly a strong pick-up in dwelling investment.

While board members noted home prices had risen over 10 percent in the past year, the minutes made no mention of any concerns over the pace of the increase.

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The RBA conceded that growth in China had probably eased early in 2014 but said other major trading partners looked to be growing at an average pace.

"The board would continue to monitor developments in the economy with members noting that, on present indication, the most prudent course was likely to be a period of stability in interest rates."

The RBA next meets on May 6.