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Australia's interest rates remain on hold, current account deficit widens
Last Updated: 2017-09-05 16:25 | Xinhua
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Australia's interest rates remained on hold on Tuesday, following a meeting of the Reserve Bank of Australia (RBA), with the central bank maintaining their neutral policy stance while meantime the current account deficit continues to widen.

In a statement, the governor of the RBA, Philip Lowe said that the decision to keep the rate at 1.50 percent comes as global economic conditions are "continuing to improve."

"Wage growth remains low in most countries, as does core inflation. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices," Lowe said.

"Financial markets have been functioning effectively and volatility remains low. The recent data have been consistent with the RBA's expectation that growth in the Australian economy will gradually pick up over the coming year."

The main message from the announcement was that interest rates have been left on hold for the past 13 months, according to Paul Dales, chief economist at Capital Economics, who told Xinhua on Tuesday that he feels they will remain stagnant for the next "two years or so."

"The RBA does not seem to be in a rush to raise rates, and it's getting a little more optimistic on the outlook for economic growth, perhaps even inflation, but its concerns about financial stability will introduce a tendency to inertia, so the markets will have to change their message that interest rates will rise next year," Dales said.

Dales said the RBA is almost being held "hostage" by the levels of household debt in Australia, which have the effect of preventing any kind of action by the central bank on interest rates, be it higher, or lower.

"On one hand it means they don't really want to cut rates to boost the economy because they don't want to induce households to take on more debt, but on the other hand they don't want to raise rates because it might push many households who are already heavily indebted over the edge, and weaken the economy further," Dales said.

"So they are sort of stuck in an awkward position where I think the best thing to do is for them to sit on their hands and do nothing. It is going to be a boring time, I'm afraid."

Current account figures for Australia were also released earlier on Tuesday, with data from the Australian Bureau of Statistics showing that the deficit widened by 4.8 billion Australian dollars (3.82 billion U.S. dollars), to sit at 9.56 billion Australian dollars (7.61 billion U.S. dollars), while the primary income deficit grew by 499 million Australian dollars (397 million U.S. dollars) to now total 12.159 billion Australian dollars (9.68 billion U.S. dollars), partly due to mining sector profits being paid to foreign owners.

The balance of goods and services managed to remain in surplus for the quarter at 3.07 billion Australian dollars (2.44 billion U.S. dollars), but this result was substantially lower than the 7.4 billion Australian dollars (5.89 billion U.S. dollars) surplus achieved in the previous quarter.

These figures showed that the Australian economy remains in good shape, according to Craig James, chief economist at the Commonwealth Bank of Australia who told Xinhua that the positive outlook on the economy from the RBA has been "vindicated."

"While much of the export focus is on iron ore and coal, rural exports have been quietly lifting to fresh highs over the last few quarters. The good economic times are being experienced across the nation." James said.

The esteemed economist suggested that the datasets released Tuesday would result in increased optimism from the RBA, but stressed that any lift in interest rates would be "some way off," due to the containment of inflation by the central bank.

Australia's net foreign debt position fell drastically from 1.01 trillion Australian dollars (804 billion U.S. dollars), to 990.6 billion Australian dollars (788.5 billion U.S. dollars)for the quarter.

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