Australia's central bank keeps interest rates on hold

Indo Asian News Service

Sydney, May 2 (IANS) The Reserve Bank of Australia (RBA) on Tuesday said it will keep the cash rate on hold, sticking to the current rate of 1.5 per cent.

RBA Governor Philip Lowe said no movement on interest rates was necessary as headline inflation during the March quarter remained within the target range of two to three per cent, Xinhua news agency reported.

"Inflation picked up to above two per cent in the March quarter in line with the bank's expectations. In underlying terms, inflation is running at around 1.75 per cent, a little higher than last year. A gradual further increase in underlying inflation is expected as the economy strengthens," Lowe said.

"The bank's forecasts for the Australian economy are little changed. Growth is expected to increase gradually over the next couple of years to a little above three per cent."

One of Australia's leading economists Phil Dales of Capital Economics, in a statement on Tuesday, said the Reserve Bank will struggle to be in a position to raise rates before 2019 and also may need to explore other measures.

"There is still a risk that a further deterioration in the labour market prompts the RBA to cut interest rates this year," Dales said.

"It looks as though interest rates will remain on hold at 1.5 per cent for the rest of this year as financial stability concerns continue to force the RBA to put up with underlying inflation remaining below the 2 to 3 per cent target range and an unemployment rate of close to 6 per cent."

In the RBA announcement, Lowe mentioned the regulatory steps that have been taken in terms of property lending growth which have made an impact to ease concerns about household debt, but HIA economist Geordan Murray has called for regulators to take caution in their actions.

"The housing cycle has passed its peak. Whether it be APRA's guidance on lending standards, reform of planning policies, state or commonwealth taxation and expenditure measures, or monetary policy, our policy makers must proceed with care," Murray said.