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Australia holds interest rates at record low

[SYDNEY] Australia's central bank on Tuesday held interest rates at the historic low of 2.0 per cent, but said continued low inflation would provide scope for further easing to stimulate the economy.

For the ninth straight meeting, the Reserve Bank of Australia (RBA) kept its official cash rate at its lowest level in history, first reached in May 2015.

"At today's meeting, the board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target," RBA Governor Glenn Stevens said in a statement.

"The board therefore decided that the current setting of monetary policy remained appropriate."

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The RBA, which had been widely expected to keep rates on hold, said its wait-and-see approach would give it more time to assess whether recent financial turbulence "portends weaker global and domestic demand".

The bank said the global economy appeared to be growing at a slightly lower pace than had been expected, while key trading partner China's growth rate was continuing to moderate.

In Australia, there were positive signs as the economy unwinds from an unprecedented period of mining investment, with improved labour market conditions an indication of expansion in the non-mining parts of the economy, it said.

Ahead of quarterly growth figures due Wednesday, the RBA said it would watch for a continued improvement in jobs data while keeping its eye on inflation.

"Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand," Mr Stevens said.

The Australian dollar rose slightly after the rate decision to 71.38 US cents.

Capital Economics said the RBA did not go far enough, with a rate cut an effective option to weaken the currency.

"We expect that the RBA will cut interest rates to 1.5 per cent this year, perhaps starting with a reduction in May, and that the Australian dollar will weaken from 71 US cents now to around 65 US cents," chief Australia and New Zealand economist Paul Dales said.

But Westpac's Bill Evans said while the central bank had strengthened its easing bias somewhat, it was "some way away from delivering on this".

"It has ample time to be convinced, particularly about the labour market and the impact of global financial turmoil," he said.

AFP

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