Rates on hold in Australia

MARK MULLIGAN
Last updated 17:18 02/09/2014

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The Reserve Bank of Australia has kept interest rates on hold at 2.5 per cent, citing spare capacity in the labour market and concerns about the Chinese property market.

The cash rate has been at that level since August last year.

Noting again that global growth is continuing at a moderate pace, it said: "China's growth remains generally in line with policymakers' objectives, with weakening property markets a challenge in the near term."

For Australia, the RBA noted "gradually improving business conditions and some recovery in household sentiment after a weaker period around mid year".

After reiterating that resource investment was declining sharply, it said "investment intentions in some other sectors continue to improve, though these areas of capital spending are expected to see only moderate growth in the near term".

"Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend over the year ahead," the RBA said.

It added: "The recorded rate of unemployment has increased recently, despite some improvement in most other indicators for the labour market this year.

"The Bank's assessment remains that the labour market has a degree of spare capacity and that it will probably be some time yet before unemployment declines consistently." 

The decision to hold, which was universally expected, came on a mixed day for the Australian economy, with stronger-than-expected government spending offsetting a larger-than-anticipated drag on gross domestic product by net exports. Some banks have revised up their estimates for June-quarter GDP growth, released on Wednesday, with the range now widening out to between 0 and 0.6 per cent from 0 to 0.4 per cent previously.

"A 0.6 per cent quarter-on-quarter gain in GDP would be a particularly good result given it follows a strong 1.1 per cent  gain in the first quarter and would leave six month annualised GDP growth at a strong 3.4 per cent," ANZ said in a note. 

"While this is an encouraging result given the headwinds the economy is currently facing, we would caution at reading too much into it -  that is, the drag from the wind-down in mining investment still has a long way to run and is likely to be much larger over coming quarters.

"Moreover, the non-mining recovery remains tentative with the structural weight of the falling terms of trade and lower public spending likely to weigh on growth for some time," the bank said.

The Australian dollar also sold off as traders began taking positions in the US greenback. It was down nearly US0.4 cents at US92.96 cents after the RBA decision

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- Sydney Morning Herald

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