SYDNEY - Australia's central bank kept interest rates steady at 5.5 per cent for a seventh straight month yesterday, a stance supported by fresh signs of weakness in the housing market.
The Reserve Bank of Australia held its monthly board meeting on Tuesday and nobody in the markets seriously expected a change.
Still, there was a sigh of relief when the window for a policy move came and went with no word, since speculation had been growing the central bank would have to tighten again to restrain inflation.
"The risk is increasing of renewed buildup of inflation pressure, from energy and wages," said Stephen Roberts, research director at Grange Securities.
"If the consumer price data confirm an acceleration in inflation then there's a real risk the bank could tighten as soon as November."
A Reuters poll of 18 analysts found seven now expected at least one tightening by mid-2006, while eight looked for rates to stay at 5.5 per cent. Then again, three actually looked for a cut in rates, illustrating just how uncertain the policy outlook is.
The central bank's latest thinking should be clearer when Deputy Governor Glenn Stevens talks about the economy in a speech in Tasmania next Tuesday.
The bank's last update on the economy came in early August, when it surprised many by sounding more relaxed on inflation and dropped a warning that policy would likely have to be tightened again this economic cycle.
Since then, Government figures have shown the economy grew at a brisk 1.3 per cent pace in the second quarter from the first, much faster than analysts had assumed.
Energy prices have also risen to new highs, leading to a pickup in at least one private measure of inflation - and to worries it could eventually feed through to wage claims.
The Government releases inflation data quarterly and the next consumer price index is not due until October 26. Should this show a marked acceleration from the second quarter's 2.4 per cent annual pace, speculation about a tightening is sure to grow.
Data yesterday suggested Australia's housing market might be entering a fresh downturn, having already seen home prices fall 5 per cent in the year through June.
Approvals for building new homes in Australia dived a seasonally adjusted 8 per cent in August, matching July's steep fall and taking total approvals to a four-year low.
"That was much worse than expected, and the underlying numbers look weak across the board," said Michael Every, senior economist at RBC Capital markets.
He said the current boom in business investment would help offset some of the housing weakness.
- REUTERS
Steady as she goes at the RBA
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