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The Globe and Mail

Australian central bank surprises, holds rates

A woman walks past the Reserve Bank of Australia (RBA) building in Central Sydney December 2, 2008.


Australia's central bank on Tuesday unexpectedly held its official interest rate steady at 3.25 per cent, saying that recent indications on the world economy were more positive.

The Reserve Bank of Australia last month sliced 25 basis points off the cash rate, taking it to lows not seen since October 2009 when it first resumed hiking rates following the global downturn.

Economists had widely tipped a further 25 basis point cut, but central bank governor Glenn Stevens said the RBA "judged that the stance of monetary policy was appropriate for the time being".

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Mr. Stevens said while commodity prices were lower and employment was softening, growth has been running close to trend over the past year in mining-powered Australia and inflation was in the RBA's preferred 2-3 per cent zone.

"Looking ahead, the peak in resource investment is likely to occur next year, at a lower level than expected six months ago," he said.

"As this peak approaches, the Board will be monitoring the strength of other components of demand."

The Aussie dollar rose above 104 (U.S.) cents on the decision, while the share market closed up 0.24 per cent at 4,484.8 points.

Mr. Stevens said global growth was forecast to be a little below average for a time, and risks to the outlook were on the downside, largely as a result of eurozone woes. But he said risks elsewhere "seem more balanced".

"The United States is recording moderate growth, while recent data from China suggest growth there has stabilised," he said.

Australia was one of the first developed economies to begin raising rates after the global financial crisis rattled markets worldwide, first lifting them in October 2009.

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It began pulling back again in November 2011 when the central bank slashed the cash rate for the first time in more than two years to bring it down to 4.50 per cent. The rate has been declining ever since.

Finance Minister Penny Wong said Australia stood out against its peers when it came to a strong economy, and mortgage-holders had benefited from a total cut of 150 basis points in the past year.

"We've got solid growth, low unemployment and low interest rates," she said.

The decision to keep rates on hold, which breaks a six-year trend of changing the cash rate on the same day as the nation's most famous horse race, the Melbourne Cup, was questioned by retailers.

"We believe there is still time for the RBA to deliver a Christmas gift to business owners, workers and consumers, by cutting rates in December," National Retail Association chief executive Trevor Evans said.

But Mr. Stevens said the impact of earlier decisions were still filtering into the economy and the RBA would be monitoring the situation carefully.

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"Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns," he said in his statement.

"Further effects of actions already taken to ease monetary policy can be expected over time."

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