SYDNEY: Australia’s central bank yesterday kept interest rates at a record low 2.5 percent for a seventh straight board meeting amid only tentative signs that the non-mining economy is improving.
The central bank indicated a “period of stability” in the cash rate as the commodity-powered nation’s transition away from its reliance on the mining sector struggles to take hold.
“In the board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target,” the bank said in a statement that was similar to a month ago.
Governor Glenn Stevens said consumer demand had firmed “slightly”, foreshadowing a solid expansion in housing construction, while business conditions and confidence had also improved and exports were rising.
But at the same time, resources sector investment spending was set to decline significantly.
“At this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans,” he said.
Public spending was also set to be subdued while the unemployment rate — currently at 6.0 percent and already the highest in a decade — was expected to rise “a little further in the near term”.
Looking ahead, Stevens said “continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time”.
“Inflation is expected to be consistent with the 2-3 percent target over the next two years,” he added.
The Australian dollar fell slightly after the announcement to 92.71 US cents, down from 92.81 US cents just before the data was released.
“The most important thing to note, in our view, is that the mining investment slowdown has barely started,” said Capital Economics analyst Daniel Martin.
“The government’s survey of investment intentions suggests that mining investment will fall sharply in FY 2014/15 after year of strong gains.”
AFP
