Australia leaves interest rates on hold


Australians are likely to face higher interest rates from Wednesday

Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Australia's central bank has surprised markets by again leaving interest rates unchanged Wednesday.

The Reserve Bank of Australia has not moved on rates since it cut the official cash rate to 4.25 percent in December.

There was an expectation among economists that after its regular monthly meeting Tuesday, the bank would lift rates by a quarter of a percentage point in response to domestic economic resilience and upbeat figures from the United States.

The bank announces any increase at 9.30 am local time the morning after its meeting. But Wednesday's "window" passed with no announcement.

JP Morgan chief economist in Sydney Andrew Pease told CNN that a rate rise was "always going to be a fairly close call".

He said he now expected the central bank to tighten rates in May, after the March quarter consumer price index figures are released later this month.

Pease said any tightening would be "quite modest" because the housing boom that had underpinned much of the recent economic activity in Australia was running out of steam.

Most economists had seen the chances of an Australian rate rise as better than 50-50, following the 0.25 percentage point increase by New Zealand's central bank on March 20.

"There is ample justification for commencing the tightening cycle now," HSBC Australia economist Grant Fitzner said in a briefing note Tuesday.

Six cuts in 2001

Australia's official cash rate of 4.25 percent is the lowest level in about 30 years. The central bank cut rates six times in 2001, but has now left them unchanged for four months.

The domestic economy has been on a consumer-led run, with national accounts figures released last month showing better than expected growth of 4.1 percent in 2001.

Consumer confidence rose for the fifth straight month in March to reach its highest level since 1999, according to the Westpac-Melbourne Institute survey.

Inflation is also expected to moderate from 3.1 percent in 2001 to about 2.7 percent by the middle of this year.

Economists thought that these bullish indicators, along with increasing signs of an upturn in the U.S. economy such as the latest manufacturing data, would prompt the Reserve Bank to act.

After the 9.30am "window" passed without an announcement, Pease told CNN the lack of a statement from the bank highlighted a problem in its policy.

"When it does nothing, it doesn't say why," he said.

The Australian dollar has also been on the rise against the U.S. dollar in recent days, touching a seven-month high of 53.58 U.S. cents Monday. It traded Tuesday at 53.48, and on Wednesday morning was at 53.39 to 53.44.