Australia keeps interest rates at 2%

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SYDNEY: Australia on Tuesday kept interest rates at 2.0 percent after slashing them to a record low last month, and called for a weaker currency to help counter a sluggish economy struggling with soft business spending.

The Reserve Bank of Australia has been loosening monetary policy as the country exits an unprecedented China-driven mining investment boom and non-resources industries strain to fill the gap.

Despite not cutting rates further, it signaled a mild easing bias after its monthly meeting.
“Having eased monetary policy last month, the board today judged that leaving the cash rate unchanged was appropriate at this meeting,” Reserve Bank of Australia governor Glenn Stevens said in a statement.

“Information on economic and financial conditions to be received over the period ahead will inform the board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

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The Australian dollar traded half a US cent higher at 76.74 US cents after the decision as financial markets had expected a clearer easing bias.

The RBA’s decision was widely expected by analysts, who said the central bank would sit on the sidelines as it waits to see if its two 25 basis point cuts this year—one in February and another in May—lift economic growth.

“I think they’re still prepared to cut rates but I think they didn’t want to go so far to signal a near-term move,” Barclays’ chief economist for Australia Kieran Davies told Agence France-Presse.

“The housing market is giving them pause for thought.”

Stevens noted that house prices continued to increase strongly in Sydney, although growth trends were more varied in other cities.

Economists have said lower interest rates could overheat the already booming residential property sectors in the two biggest cities Sydney and Melbourne.

Stevens warned that business spending remained soft and was a “key drag” on private demand. Weak capital expenditure data released last week showed non-mining firms were still reluctant to spend despite the looser monetary policy.

AFP

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