Australia's central bank holds rate at near zero as economy bolts ahead

SYDNEY (Reuters) -Australia’s central bank left its cash rate at record lows for its sixth straight meeting on Tuesday even as data showed the country’s economic output was likely back to its pre-pandemic level while house prices were shooting through the roof.

FILE PHOTO: Pedestrians walk past the main entrance to the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, October 3, 2016. REUTERS/David Gray

The Reserve Bank of Australia (RBA) left its policy settings at 0.1% as it awaits inflation and wage pressures. The outcome was expected unanimously by economists polled by Reuters. [AU/INT]

The local dollar eased to $0.7740 from a one-week high of $0.7769 reached earlier in the day as the RBA wrongfooted some who were betting on a hawkish tilt in the statement.

The Reserve Bank of New Zealand (RBNZ) last week hinted at the end to a pandemic-era, ultra-loose monetary policy, leading some to believe RBA would venture on that path too.

Governor Philip Lowe instead justified the need for near-zero rates despite a strong economic recovery by saying “inflation and wage pressures are subdued.”

“An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus,” Lowe added.

Australia’s second-most populous state of Victoria plunged into a lockdown last week after the state reported its first locally transmitted coronavirus cases in nearly three months.

The RBA also repeated it will not raise interest rates until inflation was “sustainably” within its 2-3% target band. Under its central scenario, underlying inflation is seen below the mid-point of that range through mid-2023.

This despite economic data pointing to a surge in activity.

A slew of strong figures earlier in the day prompted analysts to sharply upgrade their forecasts for Australia’s first-quarter gross domestic product (GDP) growth to a rapid 1.6% from 1% before the data was released.

Separate figures showed Australia’s home value index jumped 10.6% in May from a year ago to clock its strongest annual growth rate in almost 11 years.

First-quarter GDP data is due at 0030 GMT Wednesday.

“Today’s data…suggests activity is around 0.6% above pre-pandemic levels,” said National Australia Bank economist Taylor Nugent.

“A strong GDP growth print tomorrow would also be consistent with the strength seen in the labour market.”

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