Australia holds rates at 3.50 percent

Australia's central bank held interest rates at 3.50 percent for a second consecutive month, saying previous cuts were still trickling through the economy despite a softer global outlook.

Reserve Bank of Australia (RBA) governor Glenn Stevens on Tuesday said the world economy had cooled after rallying earlier in the year and global gross domestic product was now expected to grow "at no more than average pace" this year.

Europe continued to be the "most significant area of weakness" and was expected to remain a "potential source of adverse shocks for some time", he added.

Growth in key trade partner China had moderated but the slowdown appeared to have bottomed out, with the local economy growing in line with long-term averages, "moderate" job creation and low inflation.

The RBA aggressively cut rates in recent months, lopping off 50 basis points in May and another 25 points in June, and Stevens said "monetary policy is easier than it was for most of 2011" as a result.

"While it is too soon to see the full impact of those changes, dwelling prices have firmed a little over the past couple of months, and business credit has over the past six months recorded its strongest growth for several years," he said in a statement.

"The exchange rate, however, has remained high, despite the observed decline in the terms of trade and the weaker global outlook."

Balancing the stimulatory effects of the recent cuts with the ongoing damage of the high Australian dollar and deterioration in the global outlook Stevens said the bank decided to hold fire for a second month in a row.

"At today's meeting, 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," he said.

The Australian dollar hit US$1.0602 on the widely expected decision, from US$1.0580 immediately prior, with investors seeing little indication of further near-term cuts in the bank's remarks.


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