SYDNEY (AFP): Australia’s central bank Tuesday signalled it was unlikely to raise interest rates from the current 4.75 percent in the short term, saying extreme volatility was clouding the global outlook.
As it weighs up how to contain inflationary risks from the mining boom while the economy experiences softness in other sectors, the Reserve Bank of Australia (RBA) painted a neutral picture on rates.
“A key question for (board) members was the extent to which recent global and domestic developments would reduce capacity pressures in the economy and, in due course, help to contain inflation,” it said in minutes of its September meeting.
“Very little hard data were available, as yet, on which to base such judgments.”It said measures of underlying inflation had, to date, remained within the bank’s target band of 2.0-3.0 percent on a year-ended basis, but had picked up from their lows, raising concern about the medium-term outlook.
But it judged that with its current interest rate at 4.75 percent — where it has been since November 2010 — the RBA was “well placed to respond to evolving global and domestic economic conditions.””Financial indicators were generally consistent with monetary policy already exerting a degree of restraint,” the bank said.It also suggested that a rate drop was out, saying that expectations of a cut could be inaccurate, due to “technical factors” distorting the market.
The RBA said its board discussed the extreme volatility in financial markets, which it said reflected fears about a slowdown in the global economy and escalation of sovereign debt tensions overseas.“The international outlook had become significantly clouded since the previous board meeting,” it said.
“Conditions in global financial markets had been very unsettled as participants had confronted uncertainty about both the resolution to the sovereign debt problems and the prospects of economic growth in Europe and the United States.”
The RBA added the Australian economy was softer than earlier expected, employment growth had slowed and confidence was lower.
“Overall, the near-term growth outlook looked somewhat weaker than had been expected earlier, but the medium-term outlook still appeared positive, providing that the world economic outlook did not continue to deteriorate,” it said.