November 5, 2019 / 4:01 AM / 13 days ago

UPDATE 1-Australia's c.bank holds rates, keeps door open to more stimulus as economy struggles

* RBA keeps rates at 0.75% as expected at Nov meeting

* Ready to ease again if needed, rates low for long period

* Govt maintains RBA’s 2-3% inflation target, broad mandate (Adds interest rate decision, analyst reaction)

By Wayne Cole

SYDNEY, Nov 5 (Reuters) - Australia’s central bank held interest rates steady as expected on Tuesday as it gauged the impact of the three cuts already delivered this year, while leaving the door ajar for further stimulus if needed.

Wrapping up its November policy meeting, the Reserve Bank of Australia (RBA) left rates at 0.75% and made small changes to its economic forecasts, trimming both growth and unemployment.

“Given global developments and the evidence of the spare capacity in the Australian economy, it is reasonable to expect that an extended period of low interest rates will be required,” RBA Governor Philip Lowe said in a brief statement.

“The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed.”

The bank has already eased by 75 basis points since June and investors are pricing in a better-than-evens chance of a final move to 0.5% next year.

The cuts have been successful in breathing life into a moribund housing market, with revived demand driving prices up last month by the most since 2015.

However, they have so far failed to stir a desperately-needed rebound in consumer spending, even though the conservative government of Prime Minister Scott Morrison chipped in with tax rebates of its own.

Dire data out on Monday showed retail sales shrank in the year to September when adjusted for inflation, a downturn not seen since the recession of the early 1990s.

“Sales continue to show little or no response to policy measures,” warned Matthew Hassan, a senior economist at Westpac.

“Comparing reactions to fiscal and monetary policy easings historically, the current response is at the lowest end of the range,” he added. “It points to clear downside risks to wider consumption and near term forecasts for GDP growth.”

INFLATION TARGET STAYS

The RBA shaved its economic growth forecast for this year to 2.25%, from 2.5%, but still expected a pick up to 3% by 2021.

Detailed forecasts for the next couple of years will be released in the RBA’s quarterly statement on monetary policy due on Friday.

The bank has had to repeatedly trim its projections for growth and inflation in the past couple of years as consumers struggled with sluggish pay gains and record-high debt.

Indeed, core inflation has been stuck below its 2-3% target band for four whole years, implying unemployment has to fall some way from the current 5.2% level to revive wages and inflation.

While there have been some calls to widen the inflation target, say to 1-3%, Treasurer Josh Frydenberg on Tuesday reaffirmed the RBA’s current framework statement.

“Not changing the statement provides continuity and consistency at this time of global economic uncertainty,” Frydenberg said.

Widening the target band could have lessened pressure for further rate easing. The RBA has also floated the possibility of unconventional policy measures, such as buying government bonds, should further stimulus ultimately be needed.

Frydenberg also ruled out requiring the RBA governor to explain any undershooting or overshooting of the inflation target, as is required of the governor of the Bank of England.

As well as the inflation target, the RBA has a broad mandate to contribute to the stability of the local currency, full employment, and the economic prosperity and welfare of the Australian people. (Reporting by Wayne Cole; Editing by Dan Grebler & Shri Navaratnam)

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