Central bank: Low interest rates help boost Australian economy

Low interest rates are helping boost Australia's economic activity, the Reserve Bank of Australia (RBA) said in the minutes of its November board meeting released on Tuesday. At the meeting, the RBA decided to keep the cash rate unchanged at 2.5 percent. "The Board's judgment was that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target," the RBA said in the minutes. The RBA said there was increasing evidence that monetary policy was supporting activity in interest-sensitive sectors and asset values, and the stimulatory effect of interest rate cuts would continue coming through for some time. Although underlying inflation in the September quarter was a touch higher than the central bank's officials had expected, the RBA says relatively soft labor market conditions mean that domestically generated inflation is likely to remain within the central bank's target. Recent economic data suggested the Australian economy had been expanding at a below-trend pace, the RBA said. "The revised staff forecasts suggested that growth in the near term would be constrained by the decline in mining investment, the high level of the exchange rate and weak public demand," the minutes said. "A range of indicators showed that dwelling investment was picking up and this was likely to continue." It said non-resources business investment was also expected to increase given the low level of interest rates and recent substantial rises in business confidence and conditions. "Members noted that while the timing of investment upturns was very difficult to predict, it appeared likely that growth of the economy over the coming year would be below trend but that growth could reasonably be expected to pick up thereafter," the minutes said.