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Aussie central bankers upbeat on economy, keep rates on hold

Xinhua, February 2, 2016 Adjust font size:

Australia's central bankers remain upbeat about the local economy despite recent offshore volatility, leaving the official cash rate on hold at the record low 2 percent for the tenth straight month on Tuesday.

Reserve Bank of Australia governor Glenn Stevens said there were reasonable prospects for the continued growth in the economy, even if inflation is at the low end of the bank's target.

"The board therefore decided that the current setting of monetary policy remained appropriate," Stevens said.

Stevens noted the non-mining parts of Australia's economy strengthened during 2015 even as the contraction in spending in mining investment continued, while business conditions moved to "above average levels."

Australia has been undergoing its most significant economic transition in recent times, diversifying its economy away from mining-led growth into services and high end agriculture exports to capitalise on the emerging Asian middle class.

However, the bank was less optimistic about the prospects of the global economy, therefore maintaining an easing bias should inflation remain subdued "should that be appropriate to lend support to demand."

The growth in the global economy is occurring at a "slightly lower pace than expected" and financial markets have recently exhibited "heightened volatility" with a diminishing risk appetite from "diverging policy settings among the major jurisdictions," Stevens said.

While it's unlikely the bank will cut rates in 2016, markets will continue to price in the chance of a further cut by the RBA, Commonwealth Bank of Australia senior economist Gareth Aird said.

"This essentially reflects the balance of risks in the global and domestic economy, coupled with the RBA's conditional easing bias," Aird said.

The Australian dollar spiked from 71.09 U.S. cents to 71.29 U.S. cents, however has since fallen to 70.88 U.S. cents at 15:13 local time.

AMP Capital chief economist Shane Oliver still expects the RBA to ease policy in either April or May as global risks and falling commodity prices that are lowering Australia's terms of trade, "still subdued Australian growth" and lower inflation. Endit