Australia holds rates steady
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The strength of the Australian dollar has helped convince the central bank to leave rates on hold.
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SYDNEY, Australia (Reuters) -- Australia's central bank has left interest rates unchanged, pausing after two hikes as a higher Australian dollar drags on the economy and signs consumer borrowing is cooling.
The Reserve Bank of Australia (RBA) Wednesday kept its official cash rate at 5.25 percent during its first meeting since lifting rates a quarter of a percentage point in both November and December.
"There is no harm in the bank pausing to get a better idea of what last year's hikes and the high currency are doing to the economy," said Kieran Davies, chief economist at ABN Amro.
"We just didn't see the urgency to do the third consecutive hike," he said.
Along with New Zealand, Australia's rates are already the highest in the industrialized world as policymakers attempt to hose down exuberant consumer borrowing, particularly against property.
Analysts say the RBA, which makes no comment when it leaves rates unchanged, probably wants to wait and see how last year's dual monetary tightenings affect indebted consumers.
The bank may also be wary of further boosting the high-yielding Australian dollar, which has gained 36 percent in 13 months to reach six-year highs above 78c in January.
The currency, which boasts a 425 basis-point yield advantage to the U.S. dollar, eased to $0.7642/47 shortly after the data, from $0.7663/68.
The latest economic data suggests last year's monetary tightenings may be having the desired impact.
Building approvals and housing finance have both fallen for two months in a row since the rate rises.
"If it is actually the start of the bursting of the bubble you wouldn't want to add to the problem," said Stephen Koukoulas, chief strategist at TD Securities.
"They have probably got some inclination to keep hiking interest rates but for them actually to pull the trigger in the next few months they would need hard evidence that inflation pressures are building," he said.
Australian exports fell in November and December, suggesting the strong Australian dollar is taking a toll on shipments.
Inflation is sitting comfortably within the central bank's target of less than 3 percent.
The Reserve Bank delivers a detailed quarterly Monetary Policy Statement Monday.
Copyright 2004
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
