Australia’s central bank keeps key rate at 2.75%, repeats scope for cut

RBA says rates are low enough to stoke growth and that the inflation outlook provides some area for further cuts.

The Reserve Bank of Australia kept its cash rate unchanged at 2.75 percent, saying rates are low enough to stoke growth while repeating that the inflation outlook provides some scope for further cuts.

"The board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target," governor Glenn Stevens says in a statement.

"The inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand."

The bank surprised some market participants on May 7 with a quarter point rate cut, though economists were correct in calling for no change today.

Mr Stevens says data available since the bank's last meeting "is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year".

While commodity prices have declined they are still relatively high, while inflation pressures have moderated and there has been further monetary easing in some economies

The International Monetary Fund in April cut its 2013 forecast for global growth to 3.3 percent from an earlier prediction of 3.5 percent and lowered its 2014 forecast to 4 percent from 4.1 percent. Last week the IMF cut its forecast for China's 2013 growth to 7.75 percent from 8 percent.

Official figures tomorrow are expected to show Australia's annual pace of economy growth slowed to 2.7 percent in the first quarter from 3.1 percent, according to a Reuters survey of economists.

Australia's growth in the past year has been "a bit below trend" with more of the same expected in the near term. Inflation is expected to remain consistent with the bank's medium-term target over the next one to two years, Mr Stevens says.

The pace of borrowing in Australia remains relatively subdued though with some recent signs of increased demand for finance by households.

While the Australian dollar has weakened since the bank's meeting last month, "it remains high considering the decline in export prices that has taken place over the past year and a half", he says.

The Australian dollar last traded at 97.20 US cents from 97.10 cents immediately before the RBA statement was released. It has fallen from as high as $1.0582 on April 11.

The Kiwi recently traded at 82.80 Australian cents from 82.85 cents before the report and has climbed from as low as 78.79 cents on March 14.

(BusinessDesk)