Australia’s central bank keeps key rate at 2.5 percent, less bullish on China

Tuesday 1st April 2014

The Reserve Bank of Australia kept its cash rate unchanged at 2.5 percent as expected, giving an assessment broadly consistent with its March statement, while noting slower growth in China and a stronger currency.

"Continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time," said governor Glenn Stevens, reiterating that inflation is expected to be "consistent with the 2 to 3 percent target over the next two years."

"In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," he said. "On present indications, the most prudent course is likely to be a period of stability in interest rates. "

The central bank has continued to characterise the economy as one where investment spending in the resources sector is expected to "decline significantly" with only tentative signs of improving investment intentions in other sectors. His last statement, on March 4, came a day before government figures showed Australia's economy grew 0.8 percent in the fourth quarter, beating estimates, amid rising household spending.

The Australian dollar traded at 92.63 US cents from 92.82 cents immediately before the announcement and has climbed more than 4 percent this year. The kiwi dollar traded at 93.71 Australian cents from 93.52 cents.

Stevens amended his comments on the Australian dollar, saying that while the currency's decline from its highs a year ago will assist in achieving balanced growth in the economy, it would be "less so than previously as a result of the rise over the past few months" and remains high by historical standards.

Stevens also tweaked his comments about China.

"China's growth remains generally in line with policymakers' objectives, though it may have slowed a little in early 2014," he said. A month ago he didn't note any slowing.

"Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year," Stevens said, reiterating last month's comments.

BusinessDesk.co.nz

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