Australia Leaves Rate Unchanged


Australia's central bank left its benchmark interest rate at a 12-year high to gauge whether the economy is slowing enough to cool the fastest inflation since 1991.

Governor Glenn Stevens kept the overnight cash rate target at 7.25 percent in Sydney today, as forecast by all 21 economists surveyed by Bloomberg News.

Policy makers left borrowing costs unchanged for a third month amid mounting evidence the nation's 17-year economic expansion is cooling as consumers and businesses cut spending. Stevens said there is ``considerable uncertainty'' about the outlook for demand and inflation amid record oil costs and soaring prices for the nation's resource exports.

The bank also left borrowing costs unchanged in May and April after boosting rates in March for the fourth time in seven months.

The Australian dollar fell to 95.48 U.S. cents at 3:38 p.m. in Sydney from 95.70 cents just before the decision was released. The two-year government bond yield dropped 4 basis points to 6.75 percent. A basis point is 0.01 percentage point.

Australia has increased borrowing costs even as central bankers in the U.S., Canada and the U.K. reduced rates this year to cushion their economies against fallout from the global credit squeeze. Federal Reserve Chairman Ben S. Bernanke lowered the U.S. benchmark by a quarter point to 2 percent in April, the seventh cut since September.

Reports published since the central bank's May meeting suggests Australia's $1 trillion economy is cooling. The fastest inflation since 1991, record gasoline prices and falling stock values have battered consumer sentiment.

Lending to consumers and businesses grew in April by the least since July 2001, company investment dropped in the first quarter, and home-loan approvals fell in March to the lowest in almost three years.

Retail sales declined 0.2 percent in April, and company profit gains slowed in the first quarter, reports showed yesterday.

The government will publish a report tomorrow showing first quarter gross domestic product rose 0.3 percent from the previous three months, when it expanded 0.6 percent, according to the median estimate in a Bloomberg survey of economists.

Core annual inflation accelerated to 4.4 percent in the first quarter. Higher gasoline costs, which surged after the price of crude oil hit a record $135 a barrel in May, are also feeding into inflation.

A mining boom, which is forecast by the Reserve Bank to boost national income from trade by 20 percent this year, is stoking inflation as mining companies including Rio Tinto Group hire workers.

 


TradingEconomics.com, Bloomberg
6/3/2008 7:00:54 AM