Tags: Australia Holds Rates | Trims Growth Outlook

Australia Holds Rates, Trims Growth Outlook

Tuesday, 05 Jul 2011 02:15 PM

Australia's central bank held interest rates at 4.75 percent on Tuesday and conceded growth at home was unlikely to be as brisk this year as first expected, reinforcing market bets that policy could be on hold for months to come.

The Australian dollar slipped a third of a U.S. cent and shares turned lower after the Reserve Bank of Australia (RBA) noted that a more cautious consumer and a high exchange rate were "having a noticeable dampening effect" on the economy.

"Growth through 2011 is now unlikely to be as strong as earlier forecast," RBA Governor Glenn Stevens said at the end of the central bank's monthly policy meeting.

"The Board judged that the current mildly restrictive stance of monetary policy remained appropriate," he added. "In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation."

Markets had priced in no chance of a hike at this meeting and even a possibility of a cut in coming months given softness in large chunks of the economy. Manufacturing and tourism has been hurt by a high local dollar while households have been choosing to spend less and save a lot more.

Investors are also preoccupied with the ongoing strains in European sovereign debt and a recent moderation in global growth. Indeed, Stevens said a key question for policy would be how long this moderation lasted.

"The most important message jumping out at us is the continuing focus on the global outlook," said Su-Lin Ong, a senior economist at RBC Capital Markets.

"The RBA could stay on the sidelines for longer...they'll need a few more months."

Interbank futures already imply no chance at all of a hike for the rest of the year and no more tightening over the next 12 months.

Trade and Investment

All 22 analysts in a Reuters poll had expected rates to stay at 4.75 pct on Tuesday, though many still looked for a hike to 5 percent by the year-end.

The RBA itself has repeatedly cautioned that rates would likely have to rise at some point to combat inflationary pressures fuelled by a record trade and mining boom.

Sky high prices for Australia’s commodity riches are showering the country in cash through profits, wages, jobs and investment. In particular, a huge pipeline of mining projects should underpin growth for years to come

The windfall was evident in trade figures out on Tuesday that showed Australia's surplus swelled 44 percent in June to A$2.3 billion ($2.5 billion). That took the 12-month total to a record A$23.4 billion.

"The trade sector is a 'bright spot' for the economy," said George Tharenou, a senior economist at UBS. "This captures the nominal income boost coming into the economy from very high commodity prices and hence the terms of trade."

The RBA has been focused on the risk that this tide of cash will ultimately stoke inflationary pressures in an economy that has grown without pause for more than two decades.

Stevens on Tuesday said underlying inflation was expected to gradually increase over time.

Key consumer price figures for the second quarter are due on July 27 and a very high reading could yet prompt the RBA to tighten in August.

"The statement does appear a touch on the dovish side, but a lot will depend on the inflation numbers," said Michael Blythe, chief economist at Commonwealth Bank.

"In the end, this terms of trade story is going to dominate," he argued. "The capex story is also well entrenched and that's what's going to drive the medium-term outlook."

The Australian dollar slipped a tad to trade at 1.0674/84, while shares were 0.2 percent lower after the announcement.

© 2017 Thomson/Reuters. All rights reserved.

   
1Like our page
2Share
Economy
Australia's central bank held interest rates at 4.75 percent on Tuesday and conceded growth at home was unlikely to be as brisk this year as first expected, reinforcing market bets that policy could be on hold for months to come. The Australian dollar slipped a third of a...
Australia Holds Rates,Trims Growth Outlook
611
2011-15-05
Tuesday, 05 Jul 2011 02:15 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved