The Reserve Bank of Australia left its benchmark interest rate unchanged for a sixth straight meeting as signs of moderating employment growth indicate inflation will stay contained. The nation’s currency declined.
Central bank Governor Glenn Stevens today held the overnight cash rate target at 4.75 percent in Sydney, as forecast by 23 of 28 economists surveyed by Bloomberg News. Five had predicted a quarter percentage-point increase.
Stevens said the decision reflects “softened” prices for raw materials and an unemployment rate that’s been little changed near 5 percent. Consumer prices that were boosted by natural disasters earlier this year aren’t expected to accelerate much above the RBA’s target range of 2 percent to 3 percent, he said.
“The weather-affected prices should fall back later in the year, though substantial rises in utilities prices are still occurring,” Stevens said in a statement. “The bank expects that, as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the next 12 months.”
The Australian dollar erased earlier gains as investors reduced bets that the RBA will raise rates in the third quarter. The so-called Aussie declined to $1.0690 as of 2:45 p.m. in Sydney from $1.0744 before the decision and $1.0713 yesterday in New York.
Record Dollar
The central bank has relied on the Australian dollar’s strength to tighten monetary conditions. The local currency reached $1.1012 on May 2, the highest since exchange controls were scrapped in 1983.
Interest rates will need to rise “at some point” to contain inflation, the central bank said in a policy statement on May 6. That phrase wasn’t in today’s statement.
The RBA has expressed concern that higher consumption will clash with capacity constraints such as skill shortages caused by mining investment that the government estimates will reach A$76 billion ($81 billion) next fiscal year.
The central bank has sought to restrain household spending, which accounts for 55 percent of Australia’s economy, with 175 basis points of rate increases from October 2009 to November, letting the resources boom drive growth. A June 2 report showing the biggest jump in retail sales in 17 months signaled higher incomes are encouraging consumers to spend more.
Higher Wages
Australia’s minimum wage was increased 3.4 percent to A$589.30 a week, the national workplace relations tribunal said June 3. The wage price index rose 3.8 percent in the first quarter from a year earlier, the government reported May 18.
Consumer price growth accelerated to 1.6 percent last quarter, the fastest pace since 2006, as companies including BHP, the world’s biggest mining company, expand output.
Australia’s economy shrank 1.2 percent in the first quarter, the most since 1991, as floods in the northeast slashed coal exports, a June 1 report showed. Even so, bonds fell the most in almost four months after the data as investors focused on final demand, the broadest measure of spending by government, consumers and businesses, which more than doubled to 1.3 percent.
A day later, a government report showed April retail sales advanced 1.1 percent from a month earlier, the biggest jump since November 2009 and almost three times more than the median forecast in a Bloomberg News survey of economists.
Rising Prices
In the May 6 review, the RBA forecast growth of 4.25 percent this year. Consumer prices will rise 3.25 percent over the period and core inflation will reach 3 percent, it said.
Stevens has held rates in part to allow the economy in Queensland state to recover from January floods that Prime Minister Julia Gillard called the nation’s most expensive natural disaster.
The government said June 5 that the bill from the floods climbed 33 percent to A$12 billion. Lost commodity production is likely to be about A$9 billion and crop damage more than A$2 billion, it said.
Further weighing on consumers, the government said last month it will end 23 years of spending growth to help ease inflation pressure and support the return to a budget surplus.
To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
