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RBA holds key rate at 4.75% amid unsettled global markets

Australia’s central bank holds key rate at 4.75% amid unsettled global markets

Sept. 6 (BusinessDesk) –The Reserve Bank of Australia kept its key interest rate unchanged at 4.75% as expected, saying it is too soon to judge the full impact of America’s faltering economy and Europe’s debt.

“At this stage, little evidence is available to gauge any effects of the European and U.S. problems on other regions,” Governor Glenn Stevens said in a statement.

Australia is facing the pressures of a resource-driven bonanza in the terms of trade at a time when some sectors of the economy are feeling the negative effects of a strong currency and a household sector reluctant to spend money, he said. Offshore, the outlook is less certain.

“The outlook for the global economy is less clear than it was earlier in the year,” Stevens said.

The Australian dollar traded recently at US$1.0508, near the lowest level since Aug. 25. The currency has climbed 2.9% against the greenback so far this year.

“We’ll get all this offshore uncertainty, but the outlook is still pretty reasonable,” said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. “That’ll be the message from the RBA, and should be the message from the RBNZ next week.”

The Reserve Bank of New Zealand releases its monetary policy statement on Thursday next week. Traders have pared back their bets for Governor Alan Bollard’s increases in the official cash rate over the next 12 months to 38 basis points from about 50 points last week, based in the overnight index swap curve.

The RBA’s Stevens said his board “remains concerned about medium-term inflation” though he wants to wait to see how price pressures are mitigated by “softer global and domestic growth.”

Stevens said the combination of a high Australian dollar, weak asset prices and declining credit growth is keeping financial conditions “tighter than normal.”

(BusinessDesk)

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