Australia Keeps Benchmark Rate at 3%

Australia’s central bank kept interest rates unchanged for a second month and said it has scope to cut them from a 49-year low to revive an economy that probably fell into its first recession in two decades.

Governor Glenn Stevens left the overnight cash rate target at 3 percent in Sydney today after cutting it in April for the sixth time since early September.

Australia’s economy has been contracting amid the deepest global slump since the Great Depression, reducing pressure on inflation, which is likely to slow over the next two years, Stevens said.

Stevens and his board cut the benchmark interest rate by a record 4.25 percentage points between September and April to buttress an economy buffeted by a slump in consumer and business confidence, rising unemployment and a drop in demand for exports.

Households with an average mortgage of A$250,000 ($201,500) are paying A$7,000 a year less in repayments than they were at the start of September, which is equal to about 8 percent of family incomes, according to Reserve Bank calculations.

Retail sales advanced for a second month in April, new home sales gained for a fourth month and the manufacturing industry’s contraction eased in May, according to reports released yesterday.

Home-building approvals rose 5.1 percent in April, the third straight gain, a report today showed.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Australia Keeps Benchmark Rate at 3%, Bloomberg
6/2/2009 8:21:13 AM