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Australia Holds Key Rate as 15th Pause Sees It Drift From Peers
Tuesday, 5 December 2017 11:13 WIB | FISCAL & MONETARY |MoneterRBA

Australia™s central bank kept its benchmark interest rate unchanged and signaled no plans to move in the near term even as developed economies shift toward withdrawing stimulus.

The Reserve Bank of Australia™s board kept the key rate at 1.5 percent for a 15th straight meeting on Tuesday that was also the last one for the year. The decision was expected by economists and markets.

œThe outlook for non-mining business investment has improved further, with the forward-looking indicators being more positive than they have been for some time, Governor Philip Lowe said in a statement following the decision. œOne continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high. He also said the economy likely grew around its œtrend rate over the year to the third quarter.

The Australian dollar edged higher, buying 76.42 US cents at 2:34 pm in Sydney compared with 76.37 cents before the statement.

Lowe has recently made clear he™s in no rush to follow the U.S., Canada and the U.K. in raising borrowing costs just yet, with some of his Asian peersforecast to follow South Korea and hike next year. The RBA™s low rates have lifted business confidence and encouraged firms to hire and invest, but households that loaded up on debt to buy property are struggling with low wage growth to meet repayments and still consume.

Since the board last convened, the Aussie dollar is little changed; third-quarter data showed wage growth remained in the doldrums; another month of strong full-time hiring saw unemployment drop to 5.4 percent, the lowest in more than four years; and iron ore, Australia™s biggest export, has climbed 20 percent from a low in late October.

Meanwhile, the International Monetary Fund last month acknowledged that tepid wage growth meant the RBA may need to extend its rate pause for another 12 months. In contrast, the Organisation for Economic Cooperation and Development urged policy makers to raise rates in the second half of 2018 as the pick up in wages and prices becomes more entrenched.

Lowe himself said two weeks ago that if the economy continues to improve as expected, the next move in rates will be up rather than down. But, he added, continued spare capacity and a subdued inflation outlook meant there isn™t a strong case for a near-term adjustment in policy.

The RBA™s 15 meetings on hold matches its previous record. Money markets see little chance of a rate increase before December 2018 and the median estimate of economists is for tightening to begin in the fourth quarter of next year. The board doesn™t convene in January, so the next meeting will be Feb. 6, 2018.

Source: Bloomberg

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