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Australia's central bank keeps interest rate at 2.25 pct

Xinhua, March 3, 2015 Adjust font size:

The Reserve Bank of Australia (RBA) on Tuesday kept its official interest rate on hold at 2.25 percent despite speculation by many economists it would lower the rate another 0.25 percentage point.

The RBA said it was concerned that further interest rates cuts might trigger more borrowing from investors and create a property bubble.

The decision forced an immediate 0.75 U.S. cent rise in the Australian dollar before it settled at 78 U.S. cents.

RBA governor Glenn Stevens said in a statement that further easing of policy may be appropriate over the period ahead "in order to foster sustainable growth in demand and inflation consistent with the target".

Stevens said the decision came as growth in the global economy continued at a moderate pace in 2014.

"A similar performance is expected by most observers in 2015, with the U.S. economy continuing to strengthen, even as China's growth slows a little from last years outcome," he said.

"Commodity prices have declined over the past year, in some cases sharply. The price of oil in particular has fallen significantly. These trends appear to reflect a combination of lower growth in demand and, more importantly, significant increases in supply. The much lower levels of energy prices will act to strengthen global output and temporarily to lower CPI inflation rates."

Stevens said the RBA was working with other regulators to contain risks that may arise from the housing market and believed the Australia dollar needs to fall in order to achieve balanced growth.

"In other asset markets, prices for equities and commercial property have risen, in part as a result of declining long-term interest rates," he said.

"The Australian dollar has declined noticeably against a rising US dollar, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy." Endi