Rates on hold despite slowing economy

Australia holds rates at record low, signals weak growth

Interest rates have been left unchanged since August past year as the RBA juggles fears around rising house prices and record household debt, with signs of weakness in the job market and a slowdown in consumer spending.

"In the budget I foreshadowed weaker outcomes in the current year, as a result of the anticipated negative impact of temporary weather-related factors", Mr Morrison said late on Tuesday. "But on the other hand, the upbeat equity markets is good for risk sentiment and this prevents the dollar from falling too much against the yen", said Shin Kadota, a senior strategist at Barclays in Tokyo.

Analysts forecast the economy expanded a meagre 0.2 percent in the March quarter, a step back from the previous quarter's brisk 1.1 percent.

If confirmed, the figures would indicate the economy is grinding through its weakest patch since early 2009, when households and businesses were reeling from the shock of the global financial crisis. Projections for tomorrow's first quarter GDP report are for a 0.2% quarter-on-quarter growth. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom.

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

The Reserve Bank keeps the growth faith and has looked through short term sluggishness to the uplands of 2019-20 and stronger growth. "An appreciating exchange rate would complicate this adjustment".

Our base view remains that the RBA is likely to wait for further improvements in the domestic economy with the CPI print at the end of next month to be the chief agitator for a change in rhetoric.

"That is a little unusual the day before official figures are released, the preferred approach more often to be less explicit", he said. Economists forecast GDP to grow only 0.3 percent in the first quarter. Economists had forecast there would be a 0.4 percentage point detraction.

The country's current account deficit did narrow to its smallest in more than 15 years at A$3.1 billion ($2.31 billion), though that disappointed hopes for a rare surplus.

"The RBA has opted to downplay the accumulation of evidence that first-quarter GDP will be soft", said David Plank, head of Australian economics at Australia & New Zealand Banking Group Ltd. He predicted a hold verdict, but said a cut was possible in the future.

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