Monday, March 4, 2013

Australia keeps rate steady but says can cut if necessary

    Australia's central bank left its benchmark cash rate unchanged at 3.0 percent, as widely expected, saying the outlook for inflation would make it possible for the bank to ease policy if necessary but there are signs that the impact of last year's rate cuts are starting to stimulate the economy.
    The Reserve Bank of Australia (RBA), which cut its cash rate by 125 basis points in 2012, most recently in December, said inflation is likely to remain in line with the banks' target and with economic growth expected to be a little below trend in the coming year, it is appropriate to continue with an accommodative policy stance.
    "Present indications are that moderate growth in private consumption spending is occurring, though a return to the very strong growth of some years ago is unlikely," said Glenn Stevens, governor of the RBA, in a statement.
     While the full impact of last year's rate cuts will take time to become apparent and "there are signs that the easier conditions are having some of the expected effects," Stevens added that the exchange rate remains higher than expected, given the decline in export prices, low credit demand and the fact that some households and firms were focused on reducing their debt.
    The RBA's statement largely mirrors last month's statement. The RBA started its easing cycle in October 2011 and has cut rates by 175 basis points since then in an attempt to counter the impact of  lower Chinese demand for raw materials and the peak in resource investments, which "is approaching."

    Australia's Gross Domestic Product rose by 0.5 percent in the third quarter from the second quarter for annual growth of 3.1 percent, down from 3.7 percent and 4.3 percent in the first quarter.
    Stevens said the downside risks to global growth appears to have lessened in recent months and growth in China has stabilised "at a fairly robust pace."
    In its latest quarterly report, the RBA forecast economic growth of 2.5 percent in the year to June 30 and inflation of 3.0 percent. The RBA targets inflation of 2-3 percent.
    In the fourth quarter, Australia's inflation rate rose to 2.2 percent, up from 2.0 percent in the third quarter and 1.2 percent in the second.
    "The Board's view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate. The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand," Stevens said.
    Last month Stevens told an Australian parliamentary committee that interest rates were at an appropriate level right now and there was still a good deal of interest-rate stimulus in the pipeline.