The Reserve Bank of Australia viewed its policy setting as appropriate, saying it will "look through" higher inflation and slower growth stemming from natural disasters, minutes of its April 5 meeting showed.
"Headline inflation was likely to be quite high in the March quarter, while GDP would be held down, to a greater extent than earlier assumed," the bank said in the minutes released in Sydney yesterday. In setting interest rates, "the board would look through these fluctuations," it said.
Governor Glenn Stevens has held the benchmark borrowing cost for four meetings at 4.75 per cent after raising the overnight cash rate target seven times from October 2009 to November last year. Tropical Cyclone Yasi tore through sugar- and banana-producing areas in February, following two months of floods in Queensland that shut mines and wiped out crops.
"The warning on CPI suggests the RBA will want to see more data that's not so distorted by weather, which may take some time to come through, before moving on rates," said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney. "They seem fairly comfortable with rates in mildly restrictive territory at the moment."
The Australian Bureau of Statistics will release its first-quarter inflation report in Sydney on April 27.
"The extreme weather events across Queensland and elsewhere were complicating the interpretation of the economic data for the March quarter," policymakers said in the minutes.
Gross domestic product advanced 0.7 per cent in the three months through December from the third quarter, when it rose a revised 0.1 per cent.
Australia's trade balance unexpectedly swung to a deficit in February for the first time in almost a year as the natural disasters cut mining shipments and higher fuel prices boosted imports.
The nation is undergoing a boom in resource investment as mining and energy companies boost output to meet demand from China and India. That has spurred hiring and helped bolster demand for Australia's dollar, which touched a record US$1.0584 on April 8.
Australian employers added more workers than economists forecast in March, led by hiring in the mineral- and energy-rich states of Western Australia and Queensland. The number of people employed rose by 37,800, rebounding from a decline of 8600 in February. The jobless rate fell to 4.9 per cent, matching a two-year low set in December.
"Forward-looking indicators pointed to a continuation of employment growth over the months ahead," policymakers said. "Liaison with firms suggested that wage growth was increasing in mining-related industries and some skilled occupations, though pressures in the labour market had not become widespread."
The central bank in February raised its forecast for 2011 economic growth to 4.25 per cent, from a November prediction of 3.75 per cent, saying flood rebuilding will accelerate in the second half.
Policy makers expect annual growth will be boosted by projects such as BG Group's US$15 billion liquefied natural gas venture in Queensland, which is expected to generate 5000 construction jobs. BG, Chevron, Royal Dutch Shell and ConocoPhillips are among energy companies investing about A$200 billion.
The outlook for global growth has been clouded by unrest in Libya and the radiation crisis in Japan,.
"In the very short term, it was likely there would be some disruption to exports of goods and services to Japan, though, beyond this, the rebuilding effort and a possible increase in use of non-nuclear forms of energy could provide a boost to Australian exports," policymakers said.
Interest rates on "housing and business loans were a little above average levels", they said. "Given the outlook for the economy, and in particular the high level of the terms of trade and the prospective further large increase in investment, members considered that this stance remained appropriate so as to ensure that the medium-term inflation outlook remained consistent with the target."
The bank aims to keep inflation between 2 per cent and 3 per cent and the Australian currency's strength has helped slow parts of the economy. Traders see a less than 50 per cent chance Stevens will increase the benchmark rate by a quarter percentage point this year.
"Outside the resources sector, growth in investment was expected to be relatively modest," policymakers said. "In contrast, with office vacancy rates in the two largest cities projected to fall to quite low levels, a pick-up in commercial property construction was expected over the next couple of years from the current low levels."
- BLOOMBERG
Reserve Bank will look through' disaster consequences
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