Australia Leaves Interest Rates Unchanged

The Reserve Bank of Australia left interest rates unchanged on Tuesday, citing moderate growth despite drop in business investment.

The central bank left the cash rate unchanged at 1.75 percent.

While speaking to the press, Governor Glenn Stevens said inflation has been below target, hence given subdued growth in labour costs and even lower cost pressures, this he said is expected to remain the case for a while.

Australia’s low interest rates have been supporting the economy, giving commercial banks the liquidity to lend and at the same time help grow credit.

The governor said all these factors are assisting the economy to make necessary economic adjustments — “though an appreciating exchange rate could daunt current outlook,” the governor added.

But there are indications that “the effects of supervisory measures have strengthened lending standards in the housing market.”

Therefore, taking into account the available information, “the Board judged that holding monetary policy steady would be prudent at this meeting. Over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.”

Economists believed weak inflation remains the central bank focus and could force August rate reduction to 1.5 percent, if second quarter consumer price index due in July disappoint like the first quarter report.

Again, global risks could also worsen the current outlook, especially with the U.K. and the EU struggling to safeguard their economies after Brexit.

Australia’s trade balance deficit rose to $2.22 billion from $1.79 billion in May, while retail sales rose less than expected.