No surprise rate cut ahead of poll

Written By Unknown on Selasa, 03 September 2013 | 17.52

The RBA says the cash rate is appropriate for an economy expected to continue to grow below trend. Source: AAP

THE central bank expects the economy will continue to grow below trend for a while but has refrained from cutting the cash rate again just days out from the federal election.

As widely expected, the Reserve Bank of Australia (RBA) left the cash rate unchanged at Tuesday's board meeting after cutting it to an all-time low of 2.5 per cent in early August - at the start of the five-week election campaign.

RBA governor Glenn Stevens said the board judged that the setting of monetary policy remained "appropriate", but the bank would continue to keep an eye on the economy in coming months so that inflation remained within its two to three per cent target band.

Prime Minister Kevin Rudd said the steady rate outcome was good news for Australian home buyers and businesses.

"I think it is an important consideration when you look at overall cost of living pressures," Mr Rudd told reporters in Launceston.

Mr Stevens said the economy has been growing a bit below trend over the past year.

"This is expected to continue in the near term as the economy adjusts to lower levels of mining investment," he said in statement.

Even so, Mr Rudd said the Australian economy was still one of the strongest in the world, with relatively low unemployment and a triple-A rating from all three major credit agencies.

He said there has been a lack of clarity from the coalition in its attacks on the government's economic record.

"If you listened to them and walked off the planet Mars you would think that the economy was about to fall apart by tomorrow lunch time," he said.

Economists expect Wednesday's national accounts for the June quarter will show the economy expanding at an annual rate of 2.5 per cent, below a trend pace above three per cent.

Final components to the gross domestic product (GDP) outcome that was released on Tuesday showed exports making no contribution to growth, when a modest input was expected, while government spending was slightly stronger than forecast.

RBC Capital Markets head of strategy Su-Lin Ong expects the details of national accounts will likely tell a story of tepid domestic demand.

Such weak activity looks set to continue into the September quarter with retail spending data released for July growing by just 0.1 per cent to $21.8 billion, with a notable 7.9 per cent drop in department store sales in the month.

Ms Ong said the result was disappointing, having expected a temporary boost from the government's twice-yearly school kids bonus paid in June to have provided some offset in July to higher fuel prices, a mild winter, and lacklustre confidence.

Australian Retailers Association executive director Russell Zimmerman said retailers will be hoping for a majority government come polling day.

"Consumers and businesses need a strong and stable government with pro-business consistent policies in order to allow consumers to regain the confidence to spend," Mr Zimmerman said in a statement.


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