Australia Maintains Key Rate At Record Low

rba aug7

Australia's central bank kept its key interest rate, which has been at a record low for two years, unchanged on Tuesday even as other major central banks started tightening their policies.

The board of the Reserve Bank of Australia, governed by Philip Lowe, voted to maintain the cash rate at 1.50 percent. The interest rate has been at the current level since August 2016.

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

The RBA suggested that interest rates will not rise for a while yet, Paul Dales, an economist at Capital Economics, said. The economist expects the first rate hike in November next year.

The Bank's central forecast for the Australian economy remained unchanged. GDP growth is expected to average a bit above 3 percent in this year and next.

The central forecast is for inflation to be higher in 2019 and 2020, than it is currently. Inflation this year is being little lower than earlier expected, at 1.75 percent, due to once-off declines in some administered prices, the bank said.

The RBA forecast a decline in terms of trade over time but they are expected to stay at a relatively high level. The bank observed that the Australian dollar remains within the range that it has been in over the past two years.

Further, the bank sees a positive outlook for the labor market. The jobless rate is expected to ease to around 5 percent over the next couple of years.

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