Australians hold fire on interest rates

Australia's central bank held interest rates steady yesterday as the country's economic growth continued to cool.

"All the worrisome concerns of six to nine months ago have largely been alleviated," said Brian Redican, senior economist at Macquarie Bank.

"Inflation remains very muted, the housing market is coming off exactly as the Reserve Bank would have wanted and credit growth is also slowing quite rapidly.

"It would have been a very short and easy meeting for the Reserve Bank yesterday."

The Australian dollar fell to a three-week low of 76.78USc, pushed down by the rate decision, a fall in gold and copper prices, and reports showing declines in both Australian consumer sentiment and home lending.

The central bank board, which met on Tuesday, issues no post-meeting statement unless it adjusts rates.

But 21 economists polled by Reuters were unanimous that rates would be held at 5.25 per cent this month and gave only a 50/50 chance of a rate rise in Australia by the middle of next year.

Policymakers said last month that there was "no pressing need" for higher interest rates, although they still expected to tighten policy again at some stage in the present expansion.

The Reserve Bank of Australia last adjusted monetary policy in both November and December of last year after a prolonged boom in both home prices and consumer borrowing.

The value of Australian home loans fell 3.1 per cent to A$15.2 billion in October, the fourth monthly fall in six months and down 17.5 per cent from A$18.5 billion ($19.8 billion) in October 2003, a Government report showed.

Other reports for October have showed building approvals declined for a seventh straight month and retail sales unexpectedly fell.

"A weaker dwelling sector will detract from growth over the next 12-18 months, but very much in a soft-landing context," said Su-Lin Ong, senior economist at RBC Capital Markets.

The Westpac-Melbourne Institute consumer sentiment index, also published yesterday, showed a fall of 2.9 per cent in December, declining after hovering near 10-year highs for five months.

"With house prices now having been regularly reported to have fallen during the year, consumers may now be taking notice," said Bill Evans, Westpac's global head of economics.

Australia's economic expansion slowed to a seasonally adjusted 0.3 per cent in the third quarter from the second, the slowest quarterly growth in nearly four years.

New Zealand's central bank is expected to announce an unchanged rate of 6.5 per cent today.

- REUTERS