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RBA keeps rates unchanged, aussie rises 1% versus dollar

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On Tuesday, the Reserve Bank of Australia kept interest rates on hold at 2.25% at its April 7 meeting. The decision surprised many economists who had expected a further cut of 25 basis points. In his statement, the Governor Glenn Stevens said that “further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target”. This raises expectations that the RBA may cut rates in May.

Although risks still remain for the Australian economy as iron ore prices continue to fall, and this would have a big impact on the country’s main export, some economists are warning about the effect that further monetary easing would have on an already heated property market. However, wider economic indicators such as falling business investment, unemployment steadily rising since 2011 and subdued wage growth, suggest that economic growth is currently running below trend.

In the currency markets, the Australian dollar had risen by around 1.5% to its highest level in two weeks to $0.7703 from around $0.76 before the decision, moving away from a six-year low of $0.7534 it reached on April 2. The Aussie was already buoyed by better than expected retail sales data out on Monday that showed that retail sales had increased by 0.7%, which was much stronger than the 0.4% forecast. Against other major currencies, the Aussie rose by more than 1% against the euro, yen and the pound.

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