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Australia leaves rates on hold
Geoff Hiscock
SYDNEY, Australia (CNN) -- Australia's central bank has left its benchmark interest rate unchanged at 4.75 percent amid worries about a weaker global economic outlook and the impact of a devastating drought across much of the country. The decision by the Reserve Bank of Australia was widely expected, ahead of an anticipated rate cut in the United States later Wednesday. The U.S. Federal Reserve is expected to cut by at least 0.25 percentage points and as much as 0.5 percentage points, because of weakness in the world's largest economy. UBS Warburg's Sydney-based senior economist Scott Haslem told CNN on Wednesday he believed any rate moves in Australia were now "firmly on hold" because of global softening and the drought. He said this situation potentially could prevail until 2004, noting that the U.S. economy had lost momentum in the third quarter and Europe and Japan were "still soft". No announcement
The Reserve Bank's board met Tuesday. If it had decided to change rates, it would have made the announcement at 9:30 a.m. local time, Wednesday morning. The bank has now left rates unchanged since tightening by 0.25 percentage points to 4.75 percent in June. Rates are at a 30-year low. (Full story) Prime Minister John Howard welcomed the bank's decision, saying the global economy was a "little weak" and impact of the drought was beginning to be felt. He cautioned that growth this year in Australia could be closer to 3.0 percent than the 4.0 percent rate seen earlier in the year. Haslem told CNN that the economy "still feels like it is tracking at a 3.5 percent pace" and was still good compared to the rest of the world. The official forecast is for Australia's gross domestic product to grow about 3.75 percent in 2002. Big impact on the wayHaslem said the drought had yet to make a big impact, though there were significant falls in rural commodities in the most recent trade figures. He said the main impact would unfold over the next 12 months. With the housing sector losing some of its gloss, there would also be a softening of retail demand over the next year. Last week, Australia's national commodity forecaster, ABARE, again cut its winter grain outlook as drought conditions worsened in the world's No. 2 wheat exporter. (Full story) ABARE said on October 29 that production of the four major crops in the southern winter -- wheat, barley, canola and lupins -- was now likely to be just 14.8 million tonnes for 2002-03. That is a drop of 57 percent from last season's near-record harvest of 34.1 million tonnes, and a sharp revision from ABARE's forecast of 20 million tonnes made in September. ABARE executive director Dr Brian Fisher said that after the latest downgrade, the drought was now estimated to cut Australia's economic growth rate in 2002-03 by about 0.7 percentage points, or about Aust. $5.4 billion (about $3 billion).
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