Australia holds interest rate at 4.5 per cent

Australia's central bank left its benchmark interest rate unchanged at 4.5pc. Photo / Matthew Field

SYDNEY - Australia's central bank left its benchmark interest rate unchanged after the most aggressive round of increases in the Group of 20 triggered a 25 per cent decline in mortgage lending.

Governor Glenn Stevens and his policy-setting board kept the overnight cash rate target at 4.5 per cent. The decision was predicted by all 22 economists surveyed by Bloomberg News.

Six rate increases since early October have pushed borrowing costs for most businesses and households back up to their "average" levels, according to the Reserve Bank of Australia, which investors expect will keep rates unchanged until 2011.

Yesterday's decision may be echoed across Asia this week as central banks from Indonesia to Thailand and the Philippines are forecast to hold off on rate increases as they gauge fallout from Europe's debt crisis.

"Phase one of the RBA's tightening cycle is complete," Rory Robertson, an economist at Macquarie Group in Sydney, said ahead of yesterday's report. "The RBA now is firmly on hold."

Stevens increased rates from a half-century low of 3 per cent in early October, citing surging Asian demand for Australian commodities and a jobs boom that has pushed down unemployment to around half that of the United States and Europe.

The interest-rate moves helped stoke a 27 per cent gain in Australia's dollar in the 12 months to April 30, making it the second-best performer among the world's 16 most-traded currencies. The currency has since pared around half of those gains as European Union policymakers moved to prevent a potential Greek debt default.

Thailand's central bank will probably maintain its benchmark rate at 1.25 per cent today and Bank Indonesia may keep borrowing costs at 6.5 per cent on June 4, according to separate Bloomberg surveys.

The key rate in the Philippines is forecast to be held at 4 per cent on June 3.

Central bankers are holding fire amid concerns the global recovery may be cooling. Chinese manufacturing expanded at a slower pace in May, as that country's Purchasing Managers' Index fell to 53.9 from 55.7 in April. The Institute for Supply Management's US manufacturing index will today show growth slowed last month, analysts predict.

Australia's economy, which skirted last year's global recession and surged in the final three months of 2009, also shows signs of slowing as higher borrowing costs and the end of Government stimulus weigh on domestic demand.

Bank lending rose in April at the weakest pace in five months, house-price growth slowed to a 16-month low and building approvals fell for the third month this year, say reports just published.

- Bloomberg