Australia holds rates as falling currency helps fuel job gains

by NZ Adviser03 Feb 2016
(Bloomberg) -- Australia’s central bank extended its interest-rate pause for a ninth month as a declining currency helps fuel hiring among local industries that are gaining in competitiveness.

Reserve Bank of Australia Governor Glenn Stevens and his board kept the cash rate at a record-low 2 percent Tuesday, as forecast by all-but-one economist. The decision follows the biggest annual jobs gain in nine years in 2015, suggesting there is no immediate need to further stimulate the economy.

“While economic conditions are uneven and overall growth a little disappointing, it has been jobs-friendly activity,” Bill Evans, chief economist at Westpac Banking Corp. in Sydney, said before the decision. Still, “ongoing global fragilities represent a key risk,” he said.

Policy makers have reduced borrowing costs by 2.75 percentage points since late 2011 to bolster industries outside mining, which is about half way through the unwinding of an investment boom. While the monetary easing has so far failed to deliver the higher business investment the RBA wanted, housing construction has surged and the jobless rate has stopped rising.

Since the December policy meeting, the Australian currency has dropped more than 3 percent as the U.S. tightened rates, while the price of Australia’s largest export, iron ore, has stabilized at a lower level. The economy expanded 2.5 percent in the year through September, maintaining a below-average pace.

A key risk that is outside the control of policy makers is turmoil in Australia’s biggest trading partner, China, which is growing at the slowest pace in 25 years, grappling with a share- market rout and a currency that has fallen about 5 percent against the dollar in the past year.

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