Australian central bank keeps rate at 2.5 percent

The Reserve Bank of Australia left it benchmark interest rate unchanged after a policy meeting today. The overnight cash rate was left at a record low 2.5 percent for a sixteenth month in a row in order to spur the struggling Australian economy as a high currency exchange rate and tumbling export prices affect it.

RBA Governor Glenn Stevens said that “key commodity prices have declined significantly in recent months.”

“The most prudent course is likely to be a period of stability in interest rates,” Stevens said, repeating comments from last month on rates and the currency. “The Australian dollar remains above most estimates of its fundamental value” and “a lower exchange rate is likely to be needed to achieve balanced growth in the economy,” he said.

Iron ore prices which account for a large amount of Australia’s export income, plunged more than 40 percent this year as supply rises and Chinese demand cools.

“Most data are consistent with moderate growth,” Stevens said. “Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates. Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend for the next several quarters.”

The Australian dollar traded at 85.25 U.S. cents at 3:09 p.m. in Sydney from 84.83 cents prior to the decision.

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