Australia leaves interest rates on hold

SYDNEY: Australia's central bank decided Tuesday to leave its key interest rate unchanged at 3 percent, and cautiously noted some hopeful signs in the world economy despite continuing near-term gloom.

The Reserve Bank of Australia has slashed its cash rate by an aggressive 4.25 percentage points since September, when the global financial crisis erupted and sent economies tumbling worldwide.

Economists had widely expected the bank to keep the current rate of 3 percent - the lowest in 49 years - unchanged at its board meeting on Tuesday, as it takes stock of the previous cuts and other stimulus measures.

Gov. Glenn Stevens said the global economy shrank further during the first few months of 2009 but noted that financial markets seemed to be slowly improving and big stimulus plans in several countries were helping to contain the downturn.

"While the near-term outlook remains weak, there are further signs of stabilization in several countries," Stevens said in a statement. "The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little." UBS economist George Tharenou said the central bank appeared to leave itself room for further cuts if the economy did not improve.

"They did comment how they are assessing further reductions in the cash rate, looking for signs of a durable recovery," he said.

The decision came amid mixed news for the Australian economy.

The Australian Bureau of Statistics said Tuesday the rate of approvals to build new houses - an indicator of activity in the sensitive housing sector - rose a seasonally adjusted 3.5 percent in March compared to the month earlier.

The rate was higher than expected, and was the second consecutive monthly rise.

But on Monday, the official statistics bureau said house prices fell by an unprecedented 6.7 percent in the year ended March 31, the biggest annual decline on record.

Prime Minister Kevin Rudd's government, which has pumped more than 50 billion Australian dollars into the economy in cash payments and other measures to encourage spending, is warning unemployment could rise to 7 percent by mid-2010 from the latest rate of 5.2 percent.

This would create a further drag on the economy, which shrank for the first time in eight years in the fourth quarter and is generally considered to be in recession.

Treasurer Wayne Swan said unemployment would be "much higher" if it was not for lower interest rates and the government's stimulus package.