Business
Australia leaves key rate steady
Published : Apr 5, 2011 - 18:51
Updated : Apr 5, 2011 - 18:51
Australia’s central bank left its benchmark interest rate at the highest level in the developed world as floods disrupt coal mining in the nation’s northeast and a rising currency tempers inflation.

Reserve Bank of Australia Governor Glenn Stevens held the overnight cash rate target at 4.75 percent for a fourth straight meeting, as forecast by all 25 economists surveyed by Bloomberg News. He called the level “mildly restrictive” and appropriate given the economy’s outlook.

“The natural disasters over the summer have reduced output and the resumption of coal production in flooded mines is taking longer than initially expected,” Stevens said in a statement announcing the decision. “Commodity prices, including oil prices, have risen over recent months, pushing up measures of consumer price inflation in many countries.”

Australia’s dollar climbed to a record this week as surging mining investment reduces the economy’s spare capacity and Federal Reserve officials signal the U.S. recovery is still tenuous. The outlook for global growth is clouded by a nuclear crisis in Japan, Australia’s second-largest trading partner, and tensions in the Middle East that sent oil prices higher. (Bloomberg)

The Australian dollar was little changed after the decision, trading at $1.0328 at 2:41 p.m. in Sydney from $1.0327 before the announcement.

Employment growth “has moderated,” inflation is consistent with the central bank’s goal and the currency strength is helping ease prices pressures, he said. The impact of Japan’s crisis on Asia’s economy is “expected to be limited,” Stevens said. 

The Reserve Bank, which raised rates seven times from October 2009 to November last year, is pausing as the country recovers from flooding and cyclones in the northeast. Australia’s economy accelerated 0.7 percent in the fourth quarter, from a revised 0.1 percent three months earlier.

Tuseday’s statement was “little changed from March,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The RBA is now on data watch and will await the upcoming labor and consumer price data” later this month, he said.

Treasurer Wayne Swan said this week the domestic disasters will likely cost the economy about A$9 billion ($9.3 billion) after the government raised estimates on losses to the coal industry by 20 percent.

Queensland Damage

Tropical Cyclone Yasi in February tore through sugar- and banana-producing areas, following two months of flooding in Queensland that killed 36 people, shut mines and wiped out crops. The state produces 80 percent of the coking coal exports from Australia and grows more than 30 percent of the nation’s fruit and vegetables.

Australia is undergoing its biggest mining investment expansion since the 19th century to meet rising demand for the nation’s iron ore and coal from China and India. That helped propel the Australian dollar to $1.0417 this week, the highest level since the currency was freely floated in 1983.

New York Fed President William C. Dudley said April 1 he expects the central bank to complete its bond-buying and sees no case yet for reversing record monetary stimulus in a “still tenuous” recovery. The Fed has held its benchmark rate near zero since December 2008. 

(Bloomberg)
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