Australia Central Bank Holds Key Rate As Expected
Australia’s central bank left its key interest rate unchanged on Tuesday, as policymakers wait to see the impact of previous easing.
The board of the Reserve Bank of Australia, governed by Philip Lowe, decided to leave the cash rate unchanged at a record 0.75 percent.
The central bank had lowered the rate by 25 basis points in October, which was the third such reduction this year.
“Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting,” the bank said in a statement.
The bank repeated that it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The bank reiterated that it is prepared to ease monetary policy further if needed.
The bank observed that the lower cash rate has put downward pressure on the exchange rate, which is supporting activity across a range of industries. It has also boosted asset prices, which in time should lead to increased spending, including on residential construction.
Marcel Thieliant, an economist at Capital Economics expects the bank to cut the cash rate to 0.5 percent in February and to 0.25 percent in April and to launch QE in the second half of 2020.
The economist said the RBA’s assessment that the economy has reached a gentle turning point is questionable. He noted plenty of signs that the economy is not out of the woods yet.
The Australian Bureau of Statistics releases quarterly GDP data on December 4. The economy is forecast to grow 0.5 percent in the third quarter, the same rate as seen in the second quarter.
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