Reserve Bank of Australia holds cash rate at record low, signals weaker growth in March quarter

Australia's central bank on Tuesday kept its benchmark cash rates at a record low of 1.5 percent, and pointed to weaker growth in the quarter ended March.

Australia is scheduled to release GDP data on Wednesday, which economists said could come in weaker than expected after a disappointment in the country's current account figures.

The country's rates have been at an all-time low of 1.5 percent since August last year.

A man and a women walk into the Reserve Bank of Australia headquarters in Sydney, Australia.
Mark Metcalfe | Getty Images
A man and a women walk into the Reserve Bank of Australia headquarters in Sydney, Australia.

"Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures. Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent," Reserve Bank of Australia's governor Philip Lowe said in a statement.

Other than the commentary on GDP, the RBA kept its language largely unchanged, noted Andrew Ticehurst, executive director and rate strategist at Nomura Australia.

The central bank said that the global environment has continued to pick up and improvements have been made in the domestic economy. In particularly, on the housing market, RBA said recent supervisory measures "should help address the risks associated with high and rising levels of indebtedness."

"We think RBA is just starting now in softening up their language. We were really interested to see whether they would be conceding any ground today … Most of their comments are completely unchanged but just their own housing side and weaker year end GDP, it looks like their tune is just starting to shift a bit, so they are conceding a little bit of ground today," he said on CNBC's "Capital Connection."

Earlier on Tuesday, Australian Bureau of Statistics said the country's current account deficit was at its narrowest in more than 15 years in the first quarter of 2017. But the 3.1 billion Australian dollars ($2.31 billion) still came as a disappointment as investors had hoped for a surplus.

Economists said the latest set of data does not bode well for the country's GDP figures due Wednesday.

Paul Dales, chief Australia and New Zealand economist at Capital Economics, downgraded his GDP forecast for Australia to a 0.5 percent quarter-on-quarter contraction. His previous projection was a 0.3 percent expansion.

"The chances of a further rate cut at some point this year have risen and the chances of interest rates rising at all this year or next have fallen. Our central view is that rates will remain at 1.5 percent both this year and next, but the risks lie to the downside," Dales wrote in a note.

The Australian dollar, which weakened against the greenback on Tuesday morning HK/SIN, rebounded to around $0.7488 by 1 p.m. HK/SIN.

"The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment," the RBA said.