Australia’s Reserve Bank left interest rates unchanged at a 49-year low of 3 percent as expected yesterday, declining another cut amid signs the economy in China and elsewhere is improving.
The central bank said it was leaving rates on hold to gauge how previous rate cuts and government stimulus spending had affected Australia’s recession-hit economy.
Bank Governor Glenn Stevens gave a cautiously optimistic assessment of the international economy.
“While the near-term outlook remains weak, there are further signs of stabilisation in several countries,” he said in a statement. “The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little.”
Stevens noted an improvement on financial markets, although he said confidence remained fragile.
“Conditions in global financial markets remain generally on a path of gradual improvement, with equity prices off their lows, term spreads declining and capital markets re-opening,” he said.
The central bank has steadily slashed the cost of borrowing from 7.25 percent since last September, with the latest cut last month.
“Much of the effect of these changes is yet to be observed. The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Stevens said.
Stevens said last month that Australia, which in recent years enjoyed strong growth on the back of a China-driven resources boom, was in the midst of a recession.
NAB Capital head economist Rob Henderson said Stevens’ statement was upbeat and had taken heart from China’s improved prospects.
“It’s far more positive in tone than previously has been the case ... we know Glenn Stevens thinks China’s really important in terms of the outlook for the Australian economy,” Henderson said.
The government has pumped more than A$50 billion (US$37 billion) in stimulus spending into the economy and is likely to announce more measures in next week’s annual budget.
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