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Australia leaves interest rates on hold

Tuesday, March 7, 2017 - 12:37

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Australia's central bank left interest rates at a record low of 1.50 per cent on Tuesday while striking an upbeat tone on the economy following a rebound in growth at the end of last year.

[SYDNEY] Australia's central bank left interest rates at a record low of 1.50 per cent on Tuesday while striking an upbeat tone on the economy following a rebound in growth at the end of last year.

The Reserve Bank of Australia slashed rates 300 basis points between November 2011 and August last year to support non-resources industries as the economy transitions out of a mining investment boom.

It has remained on hold since then.

In similar language to the previous month, RBA governor Philip Lowe said "the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time".

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The bank has had plenty to think about since its February meeting, with data this month showing the economy rebounded strongly in the December quarter, growing 1.1 per cent for an annual rate of 2.4 per cent.

The better-than-expected numbers, after a shock 0.5 per cent contraction in the three months to September, came on the back of buoyant exports, government investment and household spending.

This was followed by a solid 0.4 per cent rebound in January retail sales, after they shrank in December.

But inflation remains below the Reserve Bank's 2-3 per cent target band while the jobless rate has been stuck around 5.75 per cent since early last year.

And while household consumption buoyed the December quarter growth result, it was largely due to savings being spent with wages growth still weak.

Given this balancing act, the central bank retained its neutral stance in assessing monetary policy settings.

The decision to stay on hold was widely expected by economists, and the Australian dollar was largely unchanged at 76.02 US cents after the statement.

Mr Lowe noted the economy was "continuing its transition following the end of the mining investment boom".

"Exports have risen strongly and non-mining business investment has risen over the past year," he said.

"Most measures of business and consumer confidence are at, or above, average. Consumption growth was stronger towards the end of the year, although growth in household income remains low.

"The outlook continues to be supported by the low level of interest rates." He acknowledged that inflation, which reached just 1.5 per cent in the final three months of last year, remained "quite low". But he said it was expected to pick up over the course of 2017.

Rapidly rising property prices are widely seen as one reason the bank has held off on another cut owing to worries it would encourage more debt-funded speculation and push prices even higher.

Mr Lowe said the housing market had strengthened in some areas, but pointed to prices declining in others.

AFP

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