Australia's central bank keeps rates at 2.5%

Tuesday 02 September 2014 08.00
Australia Central bank's decision to leave rates unchanged was widely expected by economists and financial markets
Australia Central bank's decision to leave rates unchanged was widely expected by economists and financial markets

Australia's central bank kept interest rates on hold at a record low 2.5% today as it flagged an accommodative monetary policy and stepped up its rhetoric against the local dollar. 

The Reserve Bank of Australia said it was prudent to maintain a "period of stability in interest rates" to support demand and growth in the economy as it shifts away from a dependence on mining. 

"In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," governor Glenn Stevens said in a statement. 

"On present indications, the most prudent course is likely to be a period of stability in interest rates," he added. 

The central bank's decision to leave the cash rate unchanged was widely expected by economists and financial markets. 

The RBA lifted its criticism of the dollar's continued strength against its US counterpart, which analysts said has dampened the recovery in non-mining sectors of the economy. 

"The exchange rate, on the other hand, remains above most estimates of its fundamental value, particularly given the declines in key commodity prices," Stevens said. "It is offering less assistance than would normally be expected in achieving balanced growth in the economy." 

The slight ramping up in rhetoric, while still restrained, was the strongest by the central bank since it actively talked down the currency in late 2013 and described it as "uncomfortably high". 

The Reserve Bank said the jobs market had a "degree of spare capacity" as it acknowledged a spike in the unemployment rate to a 12 year high of 6.4% in July. 

But it added that there have been "some improvement" in other labour market indicators. It noted that resources investment was starting to decline significantly, while non-mining investment would "see only moderate growth in the near term".

Australia is transiting away from an unprecedented boom in the mining sector, with rates on hold at 2.5% for over a year to stimulate growth in non-resources industries.