Australia Keeps Interest Rate At Record Low

Australians curb spending as household debt balloons

Up to now, economists expected the RBA to hold or raise rates throughout the coming year but now markets are not ruling out further easing from the central bank, especially after the latest construction and wage growth data.

"The sustained rise in confidence over the last few weeks is quite encouraging and likely reflects the improvement in labour market conditions in recent months", ANZ head of Australian economics David Plank said.

"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", said Philip Lowe, governor of the Reserve Bank of Australia, in a statement.

Sign up here for free access to 7 articles per month + twice daily business email alerts. But he counter-balanced that with a warning: underemployment was keeping a lid on wage gains which in turn is restraining household spending.

"Certainly there is no explicit policy bias being expressed and the bank seems to have gone out of its way to reaffirm its growth-gradually-increasing-to-a-little-above-3-per-cent view".

Interest rates have been left unchanged since August a year ago as the RBA juggles fears around rising house prices and record household debt, with signs of weakness in the job market and a slowdown in consumer spending.

The Australian dollar climbed after the RBA's announcement, rising to 74.86 U.S. cents by 1630 AEST, having earlier hit a low of 74.57 USA cents when weaker than expected exports data was released.




The broad-based pick-up in the global economy is continuing, Lowe said, with above-trend growth expected in a number of advanced economies.

Lowe acknowledged growth likely eased.

The surging prices are widely seen as being behind the RBA's decision to hold off on further rate cuts owing to worries it would stoke more debt-funded speculation and push the cost of housing even higher.

The long-awaited cooling of east coast house prices may also be starting to feed through.

All 33 resident rate experts surveyed by finder.com.au expected the cash rate to hold for June.

"They are going to overlook the slowdown in GDP as a temporary blip".

Economists trimmed their forecasts for first-quarter GDP after an official report showed a fall in the volume of exports detracted 0.7 percentage points from growth, the biggest drag in seven quarters.

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