September 20, 2011
AUSTRALIA'S central bank looks set to keep interest rates on hold through to the end of the year at least as the outlook for the world economy grows more uncertain and a slowdown in the domestic economy proves deeper than first thought.
But in the minutes of its September 6 board meeting, released today, and despite mounting gloom in Europe and the US, the Reserve Bank of Australia gave little hint that it might cut interest rates soon, saying the boom engulfing the mining sector will continue to stimulate the economy.
More time is needed to assess the extent and duration of a slowdown in the world economy, the RBA said. For now, a cash rate target of 4.75 per cent is appropriate, exerting "a degree" of restraint on the economy, it added.
"As further information became available on the domestic and international economies, members would continue to assess the medium-term outlook for inflation and growth," it said.
"For the present, however, members considered that the current setting of monetary policy left the board well placed to respond to evolving global and domestic economic conditions," it added.
Financial markets have priced in a strong chance the RBA will cut interest rates at its next meeting in October, something the central bank said looks inaccurate, and likely to reflect technicalities affecting the market at the moment.
Economists have been less downbeat overall. Most still expect interest rates to rise over time, with forecasts for the hike now pushed well into 2012.
The RBA's uneasy commentary about Europe's sovereign debt woes comes just hours after Standard & Poor's announced a downgrade of Italy and financial markets continue to speculate about a debt default in Greece.
The Australian dollar has started the week lower, with some traders expecting it to fall below parity before the week is over. The Australian dollar, a commodity-price based currency, remains a barometer of global confidence.
The September board meeting of the central bank took into account wild market gyrations in August, which followed the decision by Standard & Poor's to downgrade the US.
"The international outlook had become significantly more clouded since the previous board meeting," it said.
Interest rates have been on hold at 4.75 per cent since November 2010, the longest period of stability in five years. The RBA had started the year warning of more interest rate increases, but has since grown a lot more worried about the world economy.
The local economy has been weaker than expected. Unemployment has risen over recent months while consumer demand has been weak and credit growth flat. The high Australian dollar has also damped demand, it said.
Article by James Glynn From: Dow Jones Newswires