Australia holds rates steady at 4.75 percent

Australia kept official interest rates steady at 4.75 percent Tuesday despite inflation jumping in the June quarter, citing slowing global growth, rising commodity prices and the strong local dollar. It was the eighth time since November - the last time they were raised - that the Reserve Bank of Australia left the official cash rate unchanged and it saw the Australian dollar drop almost half a US cent to about 109.30.
"The global economy is continuing its expansion, but the pace of growth slowed in the June quarter," RBA governor Glenn Stevens said. "The supply-chain disruptions from the Japanese earthquake and the dampening effects of high commodity prices on income and spending in major countries both contributed to the slowing.
"It is still not clear how persistent this slower growth will be." Weak consumer demand and a soaring "Aussie" dollar - which last month hit a record high against the US unit - were also curbing expansion, he added, while saying the board remained "cautious about the medium-term outlook for inflation". Official data last week showed inflation unexpectedly jumped in the three months to June. The Australian Bureau of Statistics said the consumer price index rose 0.9 percent compared with the previous quarter, while it was 3.6 percent higher year on year.
"On balance, the Board judged that it was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks," said Stevens. The move comes as the economy shows signs of slowing down and follows the release Monday of data indicating manufacturing activity contracted in July because of the strong local currency, falling prices and lower production.
Commonwealth Bank senior economist Michael Workman said the RBA's decision was expected. "They judged it was prudent to keep the current setting of monetary policy, mainly because of the uncertainty of global financial markets in recent weeks," he said. "So that's maybe giving you a clue that if the uncertainty is removed in the coming months, then they will be discussing the need for rate rises." Workman added that local economic data, such as the June quarter inflation figure, had put upward pressure on interest rates and he was still expecting a rise this year. "Most of the analysts do expect a rate rise by the end of the year," he said.