Cyber Monday Deal: Up to 60% off InvestingProCLAIM SALE

UPDATE 1-Australia's central bank bucks global easing trend, holds rates

Published 01/03/2016, 03:13 pm
Updated 01/03/2016, 03:20 pm
© Reuters.  UPDATE 1-Australia's central bank bucks global easing trend, holds rates

* RBA keeps rates at 2 pct, sees reasonable economic growth

* Net exports make no contribution to GDP growth in Q4

* GDP expected to rise 0.4 pct q/q, 2.5 pct y/y

By Wayne Cole

SYDNEY, March 1 (Reuters) - Australia's central bank stared down global headwinds and kept interest rates steady for a tenth month on Tuesday, even as surprisingly soft data suggested the domestic economy hit an air pocket at the end of last year.

While central banks from China to Japan are going for ever more stimulus, the Reserve Bank of Australia (RBA) held rates at 2 percent at its March meeting.

The prospect of a further easing was left on the table, but a virtually unchanged statement showed little inclination to act.

"The Board judged that there were reasonable prospects for continued growth in the economy," RBA Governor Glenn Stevens said in a brief statement.

"Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand."

In a Reuters poll of 40 analysts, all but one had expected no change in the cash rate this week which limited the reaction in markets to a slight rise in the local dollar. AU/INT

Stevens again noted that the central bank was watching if the labour market could sustain its strength or whether wild swings in global markets would have a lasting impact, but left the questions open.

Since last easing in May, the central bank has shown a clear preference for further stimulus to come through a low currency.

Central banks world wide are keen to keep their currencies competitive as they take ever more aggressive steps to revive growth.

The Bank of Japan recently stunned markets by taking rates negative; China eased liquidity constraints on Monday and the European Central Bank is thought almost certain to expand its asset buying campaign at a meeting next week.

As a result, the local dollar AUD=D4 at $0.7132 is holding well above the $0.6828 lows touched in January.

That is one reason investors are still wagering on at least one more rate cut, with interbank futures 0#YIB: fully priced for 1.75 percent by August.

"We suspect the RBA will become disheartened by further shifts towards lower and negative cash rates globally, giving rise to increased risk that the AUD trades above levels which it sees as fair," said Andrew Ticehurst, an economist at Nomura.

"We continue to look for a 25 basis points cut in May."

Australian data out on Tuesday seemed to add to the case for an eventual easing. Net exports added nothing to gross domestic product (GDP) last quarter when analysts had looked for a contribution of around 0.3 percentage points.

That left analysts forecasting a rise of around 0.4 percent in GDP last quarter, less than half the gain made in the third quarter. Annual growth is seen stuck at 2.5 percent, better than most of the rich world but substandard for Australia.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.