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Australia Retains Record Low Interest Rate

rba july3

Australia's central bank decided to leave its key interest rate unchanged at a record low, as weaker currency supports exports amid fears of trade wars.

The board of the Reserve Bank of Australia, governed by Philip Lowe, on Tuesday, voted to maintain the cash rate at 1.50 percent. 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," the bank said in a statement.

The bank reiterated the low level of interest rates is continuing to support the Australian economy. "Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual," the bank said.

A gradual pick-up in inflation is expected as the economy strengthens. Inflation is forecast to be a bit above 2 percent in 2018.

The Australian dollar has depreciated a little, but remains within the range that it has been in over the past two years, the bank observed.

The bank provided a positive outlook for the labor market. The vacancy rate is high and other forward-looking indicators continue to point to solid growth in employment, the bank noted.

The RBA said the rate of wages growth appears to have troughed and there are increasing reports of skills shortages in some areas.

On property market, housing credit growth has declined, with investor demand having slowed noticeably. According to RBA, further tightening of lending standards by banks is possible, although the average mortgage interest rate on outstanding loans has been declining for some time.

Overall, growing global and housing concerns may have made the RBA even less keen to raise interest rates, Paul Dales, an economist at Capital Economics, said. While a rate cut remains improbable, it is becoming increasingly likely that interest rates may not be raised until 2020.

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