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Australian economy starts to respond to rate cuts

Posted on Feb 19, 06:41PM | IANS

Sydney, Feb 19 : Recent interest rate cuts have started to boost under-performing sectors of the Australian economy, according to the minutes of the February Reserve Bank of Australia (RBA) board meeting released Tuesday.

The RBA kept its cash rate on hold at record-low 3.0 percent in February, having lowered it by 175 basis points since November 2011, reported Xinhua.

"Interest rate sensitive parts of the economy had shown some signs of responding to these lower interest rates, which were well below their longer-run averages, and further effects could be expected over time," the RBA said.

"Noting that monetary policy was already accommodative as a result of the substantial easing of policy over the past 15 months, and that this stimulus was continuing to work its way through the economy, the board judged that it was prudent to leave the cash rate unchanged at this meeting."

However, the RBA also noted that the forecasts for the Australian GDP growth over the next year or so had been revised down slightly due to several factors including the high Australian dollar.

The central bank expects the labour market to be affected by the slightly softer outlook for economic activity.

"Employment growth was forecast to remain modest over the course of the next year, before rising gradually towards the end of the forecast period," it said.

The RBA said that, with inflation remaining contained, there was room to cut the cash rate further if needed.

"The inflation outlook, as assessed at this meeting, would afford scope to ease policy further, should that be necessary to support demand," it said.

The RBA noted the international economic conditions had improved since the start of 2013, with the US avoiding "the full extent of the large fiscal consolidation" and improved economic data from China.