Australian central bank leaves rates on hold

Australian central bank leaves rates on hold

SYDNEY - Australia's central bank kept interest rates steady at 3.00 per cent Tuesday, saying downside risks in the global economy appeared to have eased while there were signs previous cuts were working.

At its monthly meeting in Sydney, the Reserve Bank of Australia (RBA) decided to keep its cash rate where it has been since December, an historic low last reached in 2009 in the wake of the global financial crisis.

A year ago the RBA's cash rate was 4.25 per cent and RBA governor Glenn Stevens acknowledged there had been a significant easing in monetary policy for the mining-driven economy during 2012.

"Though the full impact of this will still take more time to become apparent, there are signs that the easier conditions are having some of the expected effects," he said.

Analysts had widely expected the RBA to keep interest rates on hold, with Stevens saying most indicators suggested that growth in Australia was close to trend over 2012, led by large increases in capital spending in resources.

In a sign of hope for consumer sentiment, retail spending also rose a seasonally adjusted 0.9 per cent in January, according to figures released Tuesday, reversing months of decline.

"Present indications are that moderate growth in private consumption spending is occurring, though a return to the very strong growth of some years ago is unlikely," Stevens observed.

Non-mining investment could also increase modestly over the year, he said.

But noting that a mining investment slowdown was imminent, Stevens left the door open to further cuts in the bank's cash rate which was reduced by 25 basis points in December, the last of four cuts totalling 125 basis points in 2012.

"Looking ahead, the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen," he said.

Stevens said while inflation was now about 2.25 per cent and within the RBA's 2.0-3.0 per cent target, with growth "likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate".

"The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand," he added.

Globally, Stevens said growth was forecast to be a little below average for a time, but added "the downside risks appear to have lessened over recent months".

He said the United States was experiencing a "moderate expansion", financial strains in Europe were considerably reduced compared to 2012 and growth in China had stabilised at a "fairly robust pace".

Australia GDP figures for the December quarter are released on Wednesday, with a rise in iron ore and coal exports expected to have driven growth which the government has forecast to be of 3.0 per cent this fiscal year.

"Australia's economy remains resilient, but we know some sectors are under pressure and the transition from mining to non-mining drivers of growth may not be seamless," Treasurer Wayne Swan said Tuesday.

Analysts said another interest rate cut to spur the economy may not be far away.

"It is only a matter of time until the RBA cuts rates again to help offset the impact of cooling mining investment," said Daniel Martin from Capital Economics Asia.

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