SYDNEY: Australia’s central bank left interest rates at a record low Tuesday, sitting on the sidelines for the 13th straight month due to expectations the economy was gradually strengthening.
The nation has been grappling with a transition away from an unprecedented boom in mining investment, with the Reserve Bank slashing rates by 300 basis points since November 2011 to 1.50 percent to boost the economy.
“The low level of interest rates is continuing to support the Australian economy,” RBA governor Philip Lowe said in a statement after the monthly board meeting.
“The board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
Recent data, including for employment, retail sales and capital spending, pointed to an improving growth outlook, the RBA said, adding that “reported business conditions are at a high level”.
The unchanged rate was widely tipped. The Australian dollar slipped slightly to 79.52 US cents.
Despite improvements in some sectors of the economy, the Reserve Bank is still forecast by economists to keep interest rates on hold for several more months amid concern about financial stability risks.
These include soaring property prices, particularly in the larger Australian cities, and high levels of household debt.
“Lending growth picked up quite a lot over 2016, so (the RBA) are remaining cautious that that hasn’t introduced any undue financial stability risks to household balance sheets and also to the financial system,” JP Morgan economist Henry St John told AFP.
He added that if the Reserve Bank raised interest rates soon, the higher rates could hurt Australians already grappling with high levels of household debt and low wage growth.
Macroprudential tools to tighten housing lending appeared to be taking force, the RBA noted, but “growth in housing debt has been outpacing the slow growth in household incomes”.
The Reserve Bank repeated its concern about the recent strength of the Australian dollar, which it said would weigh on the outlook for output and employment.
Commonwealth Bank of Australia’s chief economist Michael Blythe said he expected the RBA to remain on hold regarding interest rates for most of 2018.
“There has been no shortage of RBA commentary in recent times… all have sent a positive economic message and a rates-on-hold message,” he said in a note.