Australia leaves rates on hold at 4.75%
2011-03-01 18:08:30
Australia kept interest rates unchanged at 4.75 per cent on Tuesday, saying its "mildly restrictive stance" was appropriate and inflation remained under control despite catastrophic floods.
Reserve Bank of Australia governor Glenn Stevens said the floods that hit eastern Australia in recent months would impact some areas of the economy, but the effects were likely to be temporary.
"The effects of the natural disasters over the summer have reduced output, but production levels should recover over the months ahead," he said, adding that there could be a mild boost to demand from the rebuilding effort.
"Overall, looking through these temporary effects, the bank expects that inflation over the year ahead will continue to be consistent with the 2.0-3.0 per cent target."
Stevens said the global economy was continuing to expand, led by very strong growth in Asia, while Australia's terms of trade were at their highest level since the early 1950s and employment growth firm.
But he said while investment in Australia, particularly in the mining sector, was picking up in response to high commodity prices, household spending remained cautious.
Stevens said the strong Australian dollar, which dipped slightly on the statement to US$1.0156 but has traded near parity with the greenback for several months, was also helping to temper inflation -- now at 2.7 per cent.
"The board judged that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook," he said.
Economists said the decision came as no surprise, but the bank, which last raised rates in November, would likely hike them later in the year.
"The general impression is that the Reserve Bank is still pretty happy with the way things are and that the outlook for inflation remains fairly benign over the year ahead," AMP Capital Investors chief economist Shane Oliver said, adding that rates would likely to start to head higher mid-year.
Australia, the first major Western economy to raise interest rates after the global slump, has hiked its cash rate by 175 basis points since October 2009 as it rides a mining boom driven by Asian demand which helped it dodge recession.