March 3, 2015 / 4:11 AM / in 4 years

Australia's RBA holds rates, leaves door open for cut

SYDNEY (Reuters) - Australia’s central bank held its cash rate steady on Tuesday to confound calls for a cut and sending the local dollar sharply higher, though it did leave the door wide open for an easing at future policy meetings.

The currency AUD=D4 jumped half a U.S. cent after the Reserve Bank of Australia (RBA) said it was too early to follow February's quarter point cut to a record low of 2.25 percent.

“The Board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being,” RBA Governor Glenn Stevens said after the bank’s monthly policy meeting.

“Further easing of policy may be appropriate over the period ahead. The Board will further assess the case for such action at forthcoming meetings.”

The explicit easing bias was likely intended to limit upward pressure on the Australian dollar, given how many other central banks have joined the global rush to the bottom on rates.

China trimmed its rates over the weekend and the European Central Bank starts a trillion-euro quantitative easing plan this month.

Investors are still pricing in at least one more cut by the RBA, though the implied probability of a move in April shrank to around 60 percent, from near 100 percent previously.

“Every meeting from here is live,” said Tom Kennedy, an economist at JPMorgan.

“In terms of timing, the obvious one which stands out would be in May, when we get the statement of monetary policy, a new round of CPI forecasts and the bank will be able to explain their actions in more detail.”

Interbank futures <0#YIB:> took Tuesday’s decision hard as the market had priced in around a 54 percent chance of an easing this week. Fifteen of 29 analysts in a Reuters poll had also tipped a move this week.

Many argued the stimulus was needed to revive an economy that has been running below trend for more than two years, pushing up unemployment and dragging down inflation.

Particularly worrying was recent data showing mining investment in full retreat after a decade of madcap expansion, while other sectors seemed unprepared to fill the gap.


Fortunately the hundreds of billions spent on expanding mining production has led to a huge increase in export volumes which is flattering the country’s trading accounts.

The current account deficit shrank to A$9.6 billion in the fourth quarter of 2014, against forecasts of A$11 billion. Net exports added a healthy 0.7 percentage points to gross domestic product (GDP) in the quarter, according to data from the Australian Bureau of Statistics.

The GDP report is due on Wednesday and analysts have been looking for a rise of around 0.5 percent in the quarter and 2.5 percent for the year. ECONAU

That annual rate would actually be faster than the United States managed in 2014, but would still be sub-par for a nation that used to average at least 3.25 percent.

A worker on his bike rides past the Reserve Bank of Australia (RBA) building in central Sydney April 2, 2013. REUTERS/Daniel Munoz

Low mortgage rates have certainly worked their magic on housing, with approvals to build new homes jumping 7.9 percent in January, when analysts had expected a small decline.

Approvals to build apartments surged almost 20 percent in January alone - surpassing detached houses for the first time ever - in a plus for construction jobs and consumer spending.

Less welcome to policy makers has been a surge in borrowing for property investment which is fuelling rapid price rises. Home prices in Sydney rose 1.4 percent in February to be 13.7 percent higher over a year, according to property consultant CoreLogic RPData.

Editing by Eric Meijer

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