SYDNEY: Australia’s central bank kept interest rates steady for a seventh month on Tuesday as data showed exports provided a huge lift to the economy last quarter and helped fill a gaping hole left by business investment.
The Reserve Bank of Australia (RBA) did again note that low inflation meant there was room for a cut in the 2 percent cash rate should signs of recovery disappoint in coming months. But for now it sounded content to hug the sidelines.
“The Board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate,” said RBA Governor Glenn Stevens in a statement.
All 22 analysts in a Reuters poll had tipped a steady outcome this week and markets <0#YIB:> had priced in almost no chance of a move. That limited the impact on the local dollar which was up on the day at $0.7270. Interbank futures still imply around a 50-50 chance of an easing next year, with the RBA’s next meeting in early February.
Policy makers have been encouraged by signs of recovery ranging from strong employment to better business sentiment and a big boost to tourism from a low local dollar. Data due on Wednesday should show the economy regained some momentum in the third quarter after a lacklustre second quarter.
Net exports alone likely added an eye-popping 1.5 percentage points to growth – their biggest contribution since early 2009 – as export volumes jumped 5 percent while imports fell 2 percent. The contribution from trade was well timed as it helped offset a drag from government investment which dropped over 9 percent in the third quarter from the previous three months, partly due to a fall in defence spending.
Analysts expect Australia’s A$1.6 trillion of gross domestic product (GDP) rose around 0.8 percent in the quarter, lifting growth for the year to 2.4 percent from 2.0 percent.
Supporting activity has been a boom in home building which looks to have some time to run yet. Approvals to build new homes surprised by rising 3.9 percent October, with approvals for multi-unit blocks were up almost 30 percent on a year ago.
“Australia currently is building more homes than ever before,” said Stephen Walters, chief economist at JPMorgan. “We now have seen two strong months in a row,” he added. “This is not quite a trend, but it’s certainly not the softening we had anticipated.” The expansion of supply is in turn combining with tighter lending rules to take the heat out of house prices.
Figures from property consultant CoreLogic RP Data showed Sydney prices slipped 1.4 percent in November, while Melbourne took a 3.5 percent tumble. Nationally, prices eased 1.5 percent for the month while annual growth cooled to 8.2 percent.
That should be a relief to the RBA, which has been worried that excess borrowing for home investment could inflate a bubble, and lower at least one hurdle to a further rate cut.
