Australian central bank keeps rate at 2.5 percent , drops reference to room to cut more

Tuesday 3rd September 2013

The Reserve Bank of Australia kept its cash rate unchanged at 2.5 percent, as expected, while dropping a reference in previous statements that benign inflation gave it room to cut rates to stoke the economy. The Australian dollar gained after the statement.

"At today's meeting, the board judged that the setting of monetary policy remained appropriate," governor Glenn Stevens said in a statement. "The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target."

Stevens cut the cash rate a quarter-point to 2.5 percent on Aug. 6, citing previous statements that the inflation outlook "could provide some scope to ease policy further, should that be required to support demand." His latest statement keeps the wording that inflation has been consistent with the bank's medium-term target and is expected to remain there over the next one to two years.

The Australian economy continues to grow "a bit below trend" as it adjusts to lower levels of mining investment. The Australian dollar remains high even after a decline of about 15 percent since early April and may fall further, which would help the economy rebalance, he said.

The Australian dollar jumped to 90.34 US cents from 89.81 cents immediately before the statement. The New Zealand dollar fell to 86.62 Australian cents from 86.87 cents.

Central banks in both countries have a benchmark rate of 2.5 percent. The kiwi has been climbing against its Australian counterpart for most of this year, reaching the highest in almost five years in August, on expectations the RBNZ was more likely to start raising interest rates while the RBA was seen as more likely to cut borrowing costs.

In a sign that the Australian economy may be reviving, figures this week showed after figures showed the biggest gain in national dwelling values since April 2010, while approvals to build new homes jumped about 11 percent in July.

BusinessDesk.co.nz

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