Australia’s central bank signaled today it may resume cutting interest rates as soon as next month if weaker-than-forecast growth slows inflation, sending the local currency and bond yields lower.
“The board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy,” Governor Glenn Stevens said in a statement after leaving the overnight cash-rate target at 4.25 percent.
The communique indicates the next rate reduction hinges on an April 24 report on first-quarter inflation, as recent data showed the economy is probably growing slower than the central bank had predicted. The Reserve Bank of Australia has decided against lower borrowing costs at its three meetings this year as the global recovery stabilizes and a mining boom sustains domestic growth.
“A clear easing bias was introduced,” said Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc., referring to the comment on inflation. “This statement could easily have supported a rate cut today.”
A gauge of Australia’s annual inflation rate slowed in March below the central bank’s 2 percent to 3 percent target range as housing, clothing and footwear costs declined.
Consumer prices rose 1.8 percent last month from a year earlier, the slowest pace in two years, after a 2 percent annual gain a month earlier, according to an index compiled by TD Securities and the Melbourne Institute released in Sydney yesterday.
Stevens said today that inflation will stay within its 2 percent to 3 percent target range for the next one to two years.
The so-called Aussie dollar bought $1.0403 at 3:56 p.m. compared with $1.0443 before today’s decision. The Australian dollar has risen in six of the past seven quarters, reaching $1.0856 in late February. The yield on three-year Australian bonds fell as much as 10 basis points to 3.42 percent, the lowest since Feb. 7.
Australia’s economy lost 15,400 jobs in February and recorded the first increase in the unemployment rate since August, to 5.2 percent, which is still less than half the euro zone’s 10.8 percent level.
The central bank is relying on A$456 billion ($474 billion) of resource projects to meet Chinese and Indian demand to drive economic growth and support employment.
“Growth in China has moderated, as was intended, and is likely to remain at a more measured and sustainable pace in the future,” Stevens said today. “The U.S. economy is continuing a moderate expansion.”
In the past month, Australian government reports have shown fourth-quarter gross domestic product expanded at half the pace economists forecast, and the weakest exports in almost three years led to Australia’s first trade deficit in 11 months in January.
China is Australia’s biggest trading partner, and the RBA has said it expects Chinese demand for commodities to remain strong even as recent data painted a mixed picture of the world’s second-largest economy.
A Purchasing Managers’ Index of manufacturing in China rose to a one-year high of 53.1 in March, the country’s logistics federation and the National Bureau of Statistics said April 1. The gauge has a pattern of rising each March. In contrast, a PMI from HSBC Holdings Plc (HSBA) an Markit Economics showed manufacturing contracting and export orders falling.
The U.S. may be emerging as a main engine for global growth. An improving job market, rising stock prices and easier credit are combining to lift U.S. consumer confidence and spending, with optimism measured by the Bloomberg Comfort Index near a four-year high. Personal-consumption expenditures increased by the most in seven months in February, rising 0.8 percent, the Commerce Department said last week.
Australia has grown more dependent on resources as employment in manufacturing dropped by about 30 percent since 2007, while mining and government rose by more than 50 percent, HSBC estimates.
In Australia, “credit growth remains modest,” Stevens said today. “Housing prices have shown some signs of stabilizing recently, after having declined for most of 2011, but generally the housing market remains soft.”
The RBA board’s next policy meeting is scheduled for May 1, a week before the federal government delivers its 2012-13 budget. Treasurer Wayne Swan said in a statement today that “returning the budget to surplus helps ensure the Reserve Bank has the flexibility to cut rates further -- after two rate cuts last year -- if it thinks that’s necessary.”
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