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Australia central bank sees growth momentum

Bank justifies rate pause on improved outlook

  • Bloomberg
  • Published: 00:00 July 20, 2012
  • Gulf News

Sydney: Australia’s central bank kept borrowing costs unchanged this month as domestic job growth and previous interest-rate reductions help the local economy weather global disruptions, minutes of its July 3 policy meeting showed.

The local dollar maintained earlier gains.
“Consumption was being supported by a favourable labour market and recent liaison had a firmer tone,” according to minutes released on Thursday in Sydney explaining why the overnight cash-rate target was left at 3.5 per cent.

“With recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate at this meeting.”


Australia grew at the fastest annual pace in the developed world in the first quarter, and government reports since RBA governor Glenn Stevens’s latest policy decision have painted a mixed picture of the economy.

Retail sales rose by more than twice the pace economists forecast and consumer confidence strengthened, while the unemployment rate increased in June and home-loan approvals sank.
Growth “probably slowed a little from that reported for the first quarter to be around trend pace,” policy makers said in the minutes.

“Mining investment had been a little stronger than had been expected, and members noted that growth in much of the non-resource economy had remained modest.”
In their debate, the RBA officials indicated concern that the recovery in the US had slowed and European activity declined, while data for May suggested China’s economy wasn’t slowing as much as previously anticipated.


The so-called Aussie dollar, the world’s fifth-most traded currency, bought $1.0287 as of 11.32am, up 0.4 per cent from yesterday in New York. It touched $1.0297, the strongest since July 5.


China’s prospects


“Developments had been more positive for the Chinese economy following some weaker data released the previous month,” the minutes said.

“Members noted that the situation in Europe could deteriorate again and spill-over to other economies remained a substantial risk.”
Traders are pricing in a 76 percent chance that policy makers will resume rate cuts next month and lower borrowing costs by a quarter percentage point to 3.25 per cent, Bloomberg data based on swaps trading shows.


Two days after Stevens paused, China’s central bank announced the second rate cut in a month and has reduced banks’ reserve requirement ratio three times starting in November. China’s gross domestic product increased 7.6 per cent in the second quarter from a year earlier, the slowest pace in more than three years, the government reported July 13.


Resources bonanza


Powering the Australian economy is the biggest resource boom since prospectors set off a gold rush in the 1850s.

The latest bonanza — for iron ore, coal and natural gas — is bringing investment projects the government estimates to be worth A$500 billion (Dh1.89 trillion). The nation’s unemployment rate, at 5.2 per cent last month, is lower than 8.2 per cent in the US and 11.1 per cent in the Euro-area.

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