Australia's central bank left its benchmark cash rate steady at 3.0 percent, as expected, saying its accommodative stance was appropriate, but with inflation on target and growth slightly below trend it could cut interest rates if necessary.
The Reserve Bank of Australia (RBA),
last year's most aggressive rate cutter among the world's developed market
central banks, said the full impact of last year's "significant easing" on economic activity would take further time to become apparent but demand for some categories of consumer durables had already picked up, housing prices had moved higher, there were early signs of a pick up in home construction and savers were shifting their portfolios toward assets with higher returns.
On the other hand, the RBA said the exchange rate of the Australian dollar remains higher than would have been expected, given the drop in export prices, and demand for credit remains low as some households and firms continue to pay down debt.
"The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand," the RBA said in a statement, quoting its governor, Glenn Stevens.
Global growth was forecast to be "a little below average for a time, but the downside risks appear to have abated, for the moment at least," the RBA said.
Last year the Australian central bank cut its cash rate by 125 basis points in four stages, most recently in December. The RBA started its current policy easing cycle in
October 2011 with rates reduced by 1.75 percentage points since then.
Australia's inflation rate inched up to 2.2 percent in the fourth quarter, the highest quarterly rate in 2012, but well below a recent high of 3.6 percent in the second quarter of 2011.
The RBA said inflation was consistent with its medium-term target of 1-3 percent and is forecast to remain consistent with that target over the next one to two years. A softening labour market and higher unemployment should contain labour costs while businesses will be focusing on improving efficiency as demand is set to remain moderate.
Economic growth was close to trend in 2012, led by large investments in the resources sector but these investments will be peaking and this allows scope for other areas of demand to strengthen, the RBA said.
Australia's Gross Domestic Product grew by 0.5
percent in the third quarter from the second quarter for annual growth of 3.7
percent. This was lower than both the first quarter's 4.3 percent and the
second quarter's 3.7 percent but still well above 2011's average growth rate of
Current data show that private consumption is growing moderately but the near-term outlook for non-residential construction and investment outside the resources sector remains subdued. Nevertheless, the are signs of improvement in home investment with prices moving higher and exports of natural resources have been strengthening though recent bad weather has affected some shipments, the RBA said.