SYDNEY (Reuters) - Australia's central bank kept its cash rate at a record low of 2.5 percent on Tuesday saying the full impact of past easing was still percolating through the economy, though it offered little guidance on the chance of further cuts.
The Australian dollar rose in response as many in the market had expected a more dovish tone from the Reserve Bank of Australia after its monthly policy meeting. Instead, the central bank stayed mum on the outlook.
"The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target," RBA Governor Glenn Stevens said in a statement.
Some had thought it might specifically refer to there being scope to ease again if necessary, and reacted by slightly paring the chances of another rate cut in coming months.
Then again, minutes of its September meeting showed the policy board did not want to close off the possibility of further cuts back then, but neither did it want to signal an imminent intention to ease.
The central bank cut rates in May and August in large part because a long boom in mining investment had peaked and spending by other sectors had yet to step up and fill the gap. All 23 analysts in a Reuters poll expected no change in policy this week, though many still anticipated a further easing in coming months.
Financial markets imply around a 40 percent probability of a cut to 2.25 percent by Christmas, and there is scant hint of a tightening priced in for the next year. "The RBA is now more confident that the current setting in policy is getting the job done.
That means that the barrier to cutting rates is getting higher in the future," said Matthew Johnson, interest rate strategist at UBS. "I think the RBA is on hold this year with the risk of a rate cut next year."
HOUSING REVIVAL
There are signs low mortgage rates are reviving the housing market. Approvals to build new homes were up 28 percent in the year to July, a promising development as home construction has big multiplier effects on economic activity.
Home prices in the major capital cities rose 1.6 percent in September from the previous month to reach a record, according to property consultant RP Data.
Sales at auctions have also been near historic highs, prompting much debate in the media about whether the market was entering a bubble.
The RBA has branded all the talk of bubbles as "unrealistically alarmist", noting that some rise in prices is needed to encourage builders to build more homes.
"One of the most positive outcomes of the strong housing market conditions is the flow on effects for new housing construction," said RP Data's director of research, Tim Lawless.
"An uplift in the new housing sector is exactly what policy makers are hoping to see from the low interest rate setting."
Yet, low rates have had less luck in juicing consumer spending. Ever since the global financial crisis Australians have become more careful with their money, choosing to save more and borrow less, a painful sea change for retailing.
Figures from the Australian Bureau of Statistics on Tuesday showed retail sales edged up 0.4 percent in August after a run of very soft months. Annual growth of 2.3 percent was less than half the pace common for much of the previous decade.
Neither is the local dollar cooperating with policy makers who have been counting on a weaker currency to ease competitive pressures across the hard-hit manufacturing sector.
The Aussie has rebounded by around 4 U.S. cents over the past month, partly in reaction to the Federal Reserve's surprise decision to keep its asset buying programme intact.
"A lower level of the currency than seen at present would assist in rebalancing growth in the economy," was the judgement of RBA chief Stevens on Tuesday.
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The Australian dollar rose in response as many in the market had expected a more dovish tone from the Reserve Bank of Australia after its monthly policy meeting. Instead, the central bank stayed mum on the outlook.
"The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target," RBA Governor Glenn Stevens said in a statement.
Some had thought it might specifically refer to there being scope to ease again if necessary, and reacted by slightly paring the chances of another rate cut in coming months.
Then again, minutes of its September meeting showed the policy board did not want to close off the possibility of further cuts back then, but neither did it want to signal an imminent intention to ease.
The central bank cut rates in May and August in large part because a long boom in mining investment had peaked and spending by other sectors had yet to step up and fill the gap. All 23 analysts in a Reuters poll expected no change in policy this week, though many still anticipated a further easing in coming months.
Financial markets imply around a 40 percent probability of a cut to 2.25 percent by Christmas, and there is scant hint of a tightening priced in for the next year. "The RBA is now more confident that the current setting in policy is getting the job done.
That means that the barrier to cutting rates is getting higher in the future," said Matthew Johnson, interest rate strategist at UBS. "I think the RBA is on hold this year with the risk of a rate cut next year."
HOUSING REVIVAL
There are signs low mortgage rates are reviving the housing market. Approvals to build new homes were up 28 percent in the year to July, a promising development as home construction has big multiplier effects on economic activity.
Home prices in the major capital cities rose 1.6 percent in September from the previous month to reach a record, according to property consultant RP Data.
Sales at auctions have also been near historic highs, prompting much debate in the media about whether the market was entering a bubble.
The RBA has branded all the talk of bubbles as "unrealistically alarmist", noting that some rise in prices is needed to encourage builders to build more homes.
"One of the most positive outcomes of the strong housing market conditions is the flow on effects for new housing construction," said RP Data's director of research, Tim Lawless.
"An uplift in the new housing sector is exactly what policy makers are hoping to see from the low interest rate setting."
Yet, low rates have had less luck in juicing consumer spending. Ever since the global financial crisis Australians have become more careful with their money, choosing to save more and borrow less, a painful sea change for retailing.
Figures from the Australian Bureau of Statistics on Tuesday showed retail sales edged up 0.4 percent in August after a run of very soft months. Annual growth of 2.3 percent was less than half the pace common for much of the previous decade.
Neither is the local dollar cooperating with policy makers who have been counting on a weaker currency to ease competitive pressures across the hard-hit manufacturing sector.
The Aussie has rebounded by around 4 U.S. cents over the past month, partly in reaction to the Federal Reserve's surprise decision to keep its asset buying programme intact.
"A lower level of the currency than seen at present would assist in rebalancing growth in the economy," was the judgement of RBA chief Stevens on Tuesday.
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