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Australia Holds Its Key Rate as Sliding Currency Adds Stimulus
Tuesday, 4 September 2018 11:52 WIB | FISCAL & MONETARY | AustraliaRBA

Australia kept interest rates at a record low Tuesday, as it has for the past two years, while a currency sliding toward 70 U.S. cents offers the prospect of additional stimulus for the economy.

As expected, Reserve Bank Governor Philip Lowe left the cash rate at 1.5 percent, a stance he expects will eventually tighten the labor market and spur enough wage growth to speed up inflation. While the Aussie dollar™s more than 10 percent drop since February may help quicken that process, there™s a risk that rising mortgage rates and falling property prices could encourage households to put away their wallets.

The local dollar advanced, trading at 72.14 U.S. cents at 2:36 p.m. in Sydney from 71.91 prior to the release. On the Aussie, the governor noted œit has depreciated against the U.S. dollar along with most other currencies.

The RBA has said its next rate move is more likely to be up than down; the governor, since taking the helm in September 2016, has been reluctant to cut further given the diminishing returns from easier policy. Yet the RBA™s stimulus was eroded somewhat when Westpac Banking Corp. last week said it was hiking its key mortgage rate by 14 basis points, more than half a typical RBA increase, to compensate for higher offshore funding costs.

That prompted traders to push out their bets for the central bank™s first rate hike since 2010 and drive down the currency. Many analysts now see the Aussie dropping into the 60s, potentially boosting the competitiveness of exporters and import-competing industries and allowing them to take on more staff.

Source : Bloomberg

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