June 6, 2017 / 5:52 AM / a month ago

Australia central bank sticks to upbeat tune as economy underperforms

2 Min Read

FILE PHOTO: A pedestrian is reflected in a wall of the Reserve Bank of Australia (RBA) head office in central Sydney, Australia, October 3, 2016.David Gray/File Photo

SYDNEY (Reuters) - Australia's central bank held interest rates for a 10th month on Tuesday, taking an optimistic tone on the economy even while acknowledging that growth likely slowed last quarter by more than it expected.

The Reserve Bank of Australia (RBA) kept rates at a record low 1.50 percent in a widely expected move after last easing in August of 2016.

It cited a stabilisation in mining investment after years of steep falls, a rebound in the price of Australia's top exports of iron ore and coal, and the country's biggest-ever home building boom.

"Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 percent," the RBA said in a statement.

That expression of confidence was enough to lift the Australian dollar closer to a 10-day high of $0.7500 touched on Monday.

Policy makers also played down the importance of first-quarter gross domestic product (GDP) figures due on Wednesday, which are likely to show the economy had barely grown.

"It's a pretty neutral statement from the RBA," said Tapas Strickland, economist at National Australia Bank.

"They are going to overlook the slowdown in GDP as a temporary blip. We think they will remain on hold until they see any signs of a pick up in the labour market."

The futures market implies only a one-in-five chance of a cut in cash rates by year end.

The RBA described the job market as "mixed" with stronger employment growth offset by softness in hours worked and high levels of underemployment.

Analysts forecast the economy expanded a meagre 0.2 percent in the March quarter, a step back from the previous quarter's brisk 1.1 percent.

Growth for the year is seen slowing to around 1.6 percent, from 2.4 percent, the slowest since 2009.

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