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Australia Keeps Rates On Hold


Australia's central bank decided to leave its interest rate at a record low, as widely expected, at the final meeting of the year.

The board of the Reserve Bank of Australia, governed by Philip Lowe, maintained the cash rate at 1.50 percent.

The interest rate has been at this level since August 2016. The bank had reduced the rate by 25-basis points each in August and May last year.

The board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time, Lowe said in a statement.

Looking ahead to 2018, Sally Auld, an economist at JP Morgan said the RBA is likely to be on hold albeit with potential to tilt in a more dovish direction as it becomes clear that growth will fail to reach trend or better in the second half of 2018.

The outlook for non-mining business investment has improved further, with the forward-looking indicators being more positive than they have been for some time, the governor said.

According to Lowe, one continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.

He observed that wage growth remains low despite some employers finding it difficult to hire workers with the necessary skills. Lowe said this is likely to continue for a while yet, although the stronger conditions in the labor market should see some lift in wage growth over time.

The economy grew at around its trend rate over the year to the third quarter, he noted. The bank expects inflation to pick up gradually as the economy strengthens.

An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast, Lowe added.

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