Australia holds rates as RBA plays long game on economy's growth

Up to now, economists expected the RBA to hold or raise rates throughout the coming year but now markets are not ruling out further easing from the central bank, especially after the latest construction and wage growth data.

The central bank is considered nearly certain to hold rates at a record low of 1.5 percent, as it balances the risk of fuelling further borrowing in the country's home market against tepid inflation. It cited a stabilisation in mining investment after years of steep falls, a rebound in the price of Australia's top exports of iron ore and coal, and the country's biggest home-building boom.

Signs of a slump in household spending have raised fears the economy started into 2017 with a whimper, while figures published on Tuesday showed that a decline in export volumes - despite higher global prices for commodities - may have wiped 0.7 percentage points from GDP growth in the first quarter.

According to Prashant Newnaha, rates strategist at TD, not only is the RBA 99.9% certain to keep the cash rate steady at 1.50%, there's a 95% probability that the bank will deliver a neutral policy statement, largely mirroring what was communicated in the previous statement.

The RBA described the job market as "mixed" with stronger employment growth offset by softness in hours worked and high levels of underemployment.

An expansion of 0.1 per cent would drag the annual rate down to 1.4 per cent, the slowest pace since the September quarter of 2009 and a marked step down from the 2.4 per cent rate as of December 2016.


Exports dropped 1.6 percent, while imports lifted 1.6 percent. Slow growth in real wages is restraining growth in household consumption.

Data out on Tuesday showed government spending had added only marginally to growth in the quarter, restrained in part by persistent budget deficits.

"Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures".

It dropped a third of a U.S. cent to $0.7458 after data showed Australia's current account deficit narrowed to A$3.1 billion in the first quarter.

The main miss came from investment income with Australians earning less from their assets overseas.

The dollar had came under pressure as Friday's weaker-than-expected US non-farm jobs report prompted investors to pare back expectations of future interest rate increases by the Federal Reserve.


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