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RBA keeps key rate at 3.5%; global outlook 'more subdued'

Reserve Bank of Australia keeps key rate at 3.5%, says global outlook ‘more subdued’

Aug. 7 (BusinessDesk) - The Reserve Bank of Australia kept its key interest rate unchanged at 3.5 percent, saying inflation remains “low” and the pace of the global economy has become more tepid.

“With inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate,” Governor Glenn Stevens said in a statement on the central bank’s website.

Figures last months showed consumer prices rose 0.5 percent in the second quarter for an annual pace of 1.2 percent, below expectations of both the market and the central bank.

“The bank's assessment of the outlook for inflation is unchanged: it is expected to be consistent with the target over the next one-to-two years,” Stevens said. “Maintaining low inflation over the longer term will, however, require growth in domestic costs to continue their recent moderation as the effects of the earlier exchange rate appreciation wane.”

Tame inflation has prompted some bets the RBA would cut interest rates again but Stevens said today that monetary policy “is easier than it was for most of 2011, with interest rates for borrowers a little below their medium-term averages.”

“While it is too soon to see the full impact of those changes, dwelling prices have firmed a little over the past couple of months, and business credit has over the past six months recorded its strongest growth for several years,” he said.

Growth in the global economy “has softened” and current assessments are for world growth to grow “at no more than average pace in 2012.”

In China, the biggest buyer of Australia’s raw materials, “growth has moderated to a more sustainable pace, but does not appear to be slowing further.” The trend in the rest of Asia is unclear, Stevens said. US growth continues “at only a modest pace.”

“The most significant area of weakness continues to be Europe, where economic activity has been contracting and policymakers confront the very difficult task of seeking to put both bank and sovereign balance sheets onto a sound footing, while promoting conditions for improved long-term growth,” Stevens said. “Europe will remain a potential source of adverse shocks for some time.”

(BusinessDesk)

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