The Reserve Bank of Australia, or RBA, on Tuesday decided to retain the benchmark cash rate unchanged at 3.5 percent for a third consecutive month, saying that the monetary policy stance remained "appropriate", given the more subdued global outlook and expectations for a close-to-trend growth of the domestic economy.
The decision was in line with economists' forecast. The RBA reduced the cash rate by 50 basis points in May and by a quarter-point in June, following two back-to-back rate cuts towards the end of 2011.
Even after a cumulative 125 basis point reduction in cash rate since November last year, Australia has the highest borrowing costs among the developed economies. The economy has proved comparatively more resilient to the global economic turbulence, courtesy its once-in-a-century mining boom.
Australia's gross domestic product rose a seasonally adjusted 1.3 percent quarter-over-quarter in the first three months of 2012 following a 0.6 percent increase in the previous three months. The Australian Bureau of Statistics is due to release the second quarter GDP data on September 5.
Governor Glenn Stevens said most of the indicators suggest that growth has been running close to trend, led by very large increases in capital spending in the resources sector. Consumption growth was also quite firm in the first half of the year, he said. Labor market data have shown moderate employment growth despite job shedding by some industries.
He noted that due to earlier decisions, interest rates for borrowers are a little below their medium-term averages. The impact of those changes is still working its way through the economy, Stevens said.
However, the central banker observed that dwelling prices have firmed a little and business credit has picked up this year. "The exchange rate has declined over the past month or two, though it has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook," Stevens said.
Regarding the developments in the world economy, he said the risk to global GDP outlook are still on the downside. He pointed out that some recent global indicators have been weaker and this has added to uncertainty about near-term growth. "Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe."
Inflation remains low Stevens noted, adding that inflation is expected to be consistent with the target over the next one to two years. The introduction of carbon price is expected to influence consumer price developments over the next couple of quarters.
by RTT Staff Writer
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