SYDNEY--Australia's central bank left its benchmark interest
rate unchanged for a 14th straight month Tuesday, saying that while
a recent sharp fall in the Australian dollar would help the
economy, the currency still remained overvalued.
"The most prudent course is likely to be a period of stability
in interest rates," the Reserve Bank of Australia said.
The policy rate was held at a record-low 2.5% to cushion the
economy against the end of a mining investment boom, a sharp
downturn in commodity prices, and growing signs of a slowdown in
China.
"The exchange rate .. remains high by historical standards,
particularly given the further declines in key commodity prices in
recent months," the central bank said following a policy meeting
earlier in the day.
"It is offering less assistance than would normally be expected
in achieving balanced growth in the economy," the RBA said.
The central bank has indicated it was prepared to keep interest
rates low for some time yet as significant declines in unemployment
are some way off.
The Australian dollar, which has fallen by 7% since early
September, was little moved after the comments, trading in a tight
range around US$0.8750.
The fall in the currency is largely linked to a strong rally in
the U.S. dollar, but prices of important commodities such as iron
ore have fallen by 13% in the past month, adding to a more-than-40%
drop since January.
The central bank further highlighted growing risks posed by an
investor-led surge in home prices centered on Sydney and Melbourne,
noting rising lending to speculators over recent months.
Last week, the central bank said it was on course to unveil by
year-end new measures to tamp down house prices, which have risen
by more than 10% in the past year. The RBA has warned that the
housing market has become unbalanced, with nearly half of all loans
now being written for investors in the sector.
If Australia's central bank implements this so-called
macroprudential policy, it would join its counterparts in the U.K.,
Canada and New Zealand, among others, that have moved to cool house
prices.
Tim Lawless, head of research at property research firm RPData,
said the trend in house-price growth remains solid. If investor
demand for housing continues to stay strong, new lending clamps
look unavoidable, he added.
Some nonmining sectors of the economy, especially housing
construction, are in recovery, but unemployment has risen to its
highest levels in a decade, stirring caution among policy
makers.
Earlier Tuesday, the Australian Industry Group/Housing Industry
Association Performance of Construction Index posted a 4.1-point
gain for September, signaling the industry's strongest pace of
expansion in nine years.
Write to James Glynn at james.glynn@wsj.com
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