Reuters: US Dollar Report: UPDATE 1-Australia cenbank holds rates, cites "material easing"

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UPDATE 1-Australia cenbank holds rates, cites "material easing" Jul 3rd 2012, 04:42 Tue Jul 3, 2012 12:42am EDT * RBA keeps rates at 3.5 pct following back to back cuts * Says has been a material easing in policy in past six months * Market and analysts still expect further cuts ahead By Wayne Cole SYDNEY, July 3 (Reuters) - Australia's central bank on Tuesday held its main cash rate at 3.5 percent as it gauges whether back-to-back cuts already delivered will be enough to insulate the resource-rich economy from global gloom. The Australian dollar edged higher as the Reserve Bank of Australia (RBA) made no mention of whether it might ease again, though neither did it close the door on that option. "As a result of the sequence of earlier decisions, there has been a material easing in monetary policy over the past six months," wrote RBA Governor Glenn Stevens. "The Board judged that with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate." The RBA cut rates by half a point in May and a further quarter in June, taking them to the lowest since December 2009. That brought the total easing since November last year to 125 basis points. A Reuters poll of 19 analysts had found all expected rates to stay at 3.5 percent this week, while interbank futures had put the chance of a cut at just one-in-ten. Still, most analysts suspect policy could be eased again in August should official figures on inflation for the second quarter, due later this month, prove as benign as expected. Indeed, odds are that annual underlying inflation slowed to 2 percent last quarter, the lowest reading since 1999 and the very bottom of the RBA's 2 to 3 percent target band. With price pressures tame, there would be plenty of scope for stimulus as insurance against European uncertainty and the slowdown in China, Australia's single biggest export market. "Even if inflation rises from here, the starting point is low," Paul Bloxham, an economist at HSBC, noted ahead of the decision. "Much of the developed world remains a colossal muddle. European and U.S. debt problems are unresolved and the emerging economies are also slowing," he added. "With these risks in mind, we retain our view that the RBA will cut further." RELATIVELY RESILIENT Hoping to forestall recession, Europe's central bank is widely expected to cut its main interest rate when it meets on Thursday, while the Bank of England will likely announce more bond buying. In contrast, the Australian economy has generally surprised with its resilience so far this year. Gross domestic product (GDP) grew a brisk 4.3 percent to A$1.4 trillion in the year to March, its fastest pace of growth in over four years. The country's booming mining industry continues to spend heavily on expanding production to meet demand from China and India, investment that will run for some years yet. Solid growth in household incomes and a low jobless rate of 5.1 percent have helped fuel consumption, especially on services such as health, education, travel and eating out. The housing sector has been deep in the doldrums, though data out Tuesday showed a spark of life with approvals to build new homes rising by the most on record in May. The huge 27.3 percent jump in approvals blew away forecasts of a mere 5.1 percent gain, with multi-unit approvals rising no less than 58.7 percent in the month. Still, a high Australian dollar and intense foreign competition is pressuring manufacturing and retail, both big employers. Prices for some of Australia's key commodities have also been on the decline, notably for iron ore and coal, so eating into export earnings. Link this Share this Digg this Email Reprints

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