Australia Keeps Rate Unchanged at 11-Year-High 6.5%


Australia kept its benchmark interest rate unchanged as central bankers worldwide refrain from raising borrowing costs to assess whether the U.S. subprime mortgage rout will derail economic growth.

Reserve Bank of Australia Governor Glenn Stevens left the overnight cash rate target at an 11-year high of 6.5 percent in Sydney today, as predicted by all 25 economists surveyed by Bloomberg News. He raised the rate last month to curb inflation.

Policy makers in England, Europe, Canada and South Korea are all forecast to join Stevens in holding their benchmarks unchanged this week as they gauge the fallout from the worldwide financial turmoil that roiled stock and commodity markets and sent money market rates higher. Australia's economy is expanding at the fastest annual pace in three years, a report yesterday showed, reinforcing expectations Stevens may raise rates again by March.

"Central banks that are still concerned about inflation pressures, particularly Australia and Europe, will sit and wait this turmoil out,'' said Bob Cunneen, senior economist at AMP Capital Investors in Sydney. "The meltdown does pose risks to global economic growth.''

The central bank doesn't explain its decision when rates are kept unchanged. Deputy Governor Ric Battellino said last week "pressures remain'' in Australia's money market and the bank will act if needed to stabilize the cost of credit amid the global rout.


Bloomberg
9/5/2007 6:22:45 AM