Monday, September 3, 2012

Australia keeps rate steady, global outlook more subdued

    The central bank of Australia kept its benchmark cash rate unchanged at 3.50 percent, as widely expected, as inflation was on track to remain within the bank's target range and economic growth remained close to its trend rate.
    But the international outlook had become more subdued in recent months, the Reserve Bank of Australia (RBA) added in a statement from Governor Glenn Stevens.
    "Having picked up in the early months of 2012, growth in the world economy has since softened. Current assessments are that global GDP will grow at no more than average pace in 2012, with risks to the outlook still on the downside," Stevens said.
    While economic activity in Europe is contracting, growth in the U.S. is only modest, he said, adding that growth in China has remained reasonably robust but recent indicators have been weaker and this has given rise to uncertainly about near-term growth and dampened growth around Asia.

     Australia's economy expanded by 1.3 percent in the first quarter from the fourth for an annual growth rate of 4.3 percent, helped by large increases in capital spending in the resources sector.
    The RBA recently raised its 2012 growth forecast to 3.5 percent from a previous forecast of 3 percent on the back of the boom in the mining sector.
    Australia's inflation rate was 1.2 percent in the second quarter, down from 1.6 percent in the first. The RBA targets inflation of 1-3 percent.
    "The Bank's assessment is that inflation will be consistent with the target over the next one to two years," Stevens said, adding that maintaining low inflation will require growth in domestic costs to remain contained as the effects of the rise in the Australian dollar wane.
    The RBA cut its cash rate in June, bringing this year's reduction to 75 basis points,  and Stevens said interest rates for borrowers were a little below their medium-term averages and the impact of the rate cuts were still working their way through the economy.
    "At today's meeting, the Board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate," Stevens said.
    Economists had widely expected the RBA to keep rates unchanged at the meeting but are starting to look ahead to a rate cut later this year as the slowdown in Asia, along with Europe's slump, hits the country's growth.


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