RBA holds rates at record low amid sluggish growth outlook

Australians curb spending as household debt balloons

The central bank is considered nearly certain to hold rates at a record low of 1.5 percent, as it balances the risk of fuelling further borrowing in the country's home market against tepid inflation.

Governor Philip Lowe and his board left the cash rate at a record-low 1.5% Tuesday, as expected by all economists surveyed by Bloomberg.

CoreLogic head of research Tim Lawless said financial markets were starting to lean towards a cut given that other sectors of the economy other than housing needed interest rates set at a lower level than the current rates. "In other markets, prices are declining", Dr Lowe said in a statement.

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"Certainly there is no explicit policy bias being expressed and the bank seems to have gone out of its way to reaffirm its growth-gradually-increasing-to-a-little-above-3-per-cent view. They won't raise rates as underlying inflation is expected to remain close to 2 per cent over the next two years", Mr Sen said.

"Even if the RBA still doesn't want to cut interest rates below 1.5 per cent for fear of stoking the housing market and even if it thinks any such recession is due to temporary factors, it would be very courageous for it to sit on its hands when the papers are shouting about the first recession in 26 years", he said.

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"Employment growth has been stronger over recent months, although growth in total hours worked remains weak", Lowe said, adding that slow growth in real wages is restraining growth in household consumption, with household debt growth rising faster than household income growth.

The Australian dollar climbed after the RBA's announcement, rising to 74.86 U.S. cents by 1630 AEST, having earlier hit a low of 74.57 USA cents when weaker than expected exports data was released. The central bank has ignored accumulating evidence of a likely softness in Q1 GDP data and judged steady policy is consistent with growth and inflation targets.

"The last thing the RBA wants is another surge in house price growth, fuelled by unsustainable growth in household leverage", he said.

The bank had reduced the rate by 25-basis points each in August and May a year ago.

Wednesday's GDP report is expected to show just 0.3% growth in the first quarter from the previous three months, according to economists' median estimate as of 2pm Tuesday.

"They are going to overlook the slowdown in GDP as a temporary blip".

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