Australia holds rates at record low, signals weak growth

SYDNEY • Australia's central bank held interest rates for a 10th month yesterday, taking an optimistic tone on the economy even while acknowledging that growth likely slowed in the last quarter by more than it expected.

The Reserve Bank of Australia (RBA) kept rates at a record low 1.5 per cent in a widely expected move after last easing in August last year. It cited a stabilisation in mining investment after years of steep falls, a rebound in the price of Australia's top exports of iron ore and coal, and the country's biggest home-building boom.

"Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent," it said in a statement.

That expression of confidence was enough to lift the Australian dollar closer to a 10-day high of US$0.75 touched on Monday.

Policymakers also played down the importance of first-quarter gross domestic product (GDP) figures due today, which are likely to show the economy had barely grown. "It's a pretty neutral statement from the RBA," said economist Tapas Strickland at National Australia Bank. "They are going to overlook the slowdown in GDP as a temporary blip. We think they will remain on hold until they see any signs of a pickup in the labour market."

The futures market implies only a one-in-five chance of a cut in cash rates by the year end.

The RBA described the job market as "mixed" with stronger employment growth offset by softness in hours worked and high levels of underemployment.

Analysts forecast the economy expanded a meagre 0.2 per cent in the March quarter, a step back from the previous quarter's brisk 1.1 per cent. Growth for the year is seen slowing to around 1.6 per cent, from 2.4 per cent, the slowest since 2009.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 07, 2017, with the headline 'Australia holds rates at record low, signals weak growth'. Print Edition | Subscribe