Central banks keep rates on hold

Source: Dukascopy Bank SA
While Australia sued to be among those central banks that were weighing on timing of first interest rates increase, now bets are mounting that slowdown in the Australian and global economy could prompt the RBA to cut interest rates over the next 12 months. The resource-rich economy grew 0.3% in the September quarter from the previous three-month period, while GDP growth for the year was 2.7%, against economists' forecasts for a 3.1% pace. Third-quarter GDP output was the weakest quarterly growth since the beginning of 2013, putting pressure on the central bank. The RBA kept rates unchanged to urge domestic companies to invest as 11-year high jobless rate and weak wages subdue inflation. Moreover, a slowdown in China, Australia's top trading partner, worsened in October as industrial activity growth and fixed-asset investment trailed estimates. The RBA estimated that economic growth would probably remain subdued until the middle of 2015 and the jobless rate of 6.2% was unlikely to fall in a sustained manner for some time. It also noted that Japan's expansion of quantitative easing may spur flows that would support the Australian Dollar.
In Canada, the Bank of Canada also kept its overnight rate target at 1%, highlighting downside risks to Canada's inflation outlook from plunging oil prices and temporary benefits from weaker Canadian Dollar. Nevertheless, the BoC said that inflation rose more than expected over the past year, largely due to lower Loonie and some sector-specific factors. Officials saw signs of a broadening recovery in Canada's economy, which is benefitting from strengthening neighbour, the US, Canada's top trading partner. However, the central bank stressed that future global uncertainty is one of the biggest impediments to the Canadian growth. The BoC Governor Stephen Poloz also indicated that interest rates will remain low until the excess capacity from Canada's economy is eliminated and inflation is brought in line with the 2% target.
The European Central Bank also joined its foreign colleagues in keeping rates unchanged after its policy meeting. The ECB Governor Mario Draghi said that the governing council will assess early next year whether its current measures are sufficient to bring consumer prices toward its official goal of below but close to 2%, and noted the sharp drops in oil prices may make that objective more difficult to achieve. Outlining new, lower economic growth and inflation outlook over the coming two years, Draghi stressed that in case the council decide its policies are not enough to end a period of disinflation, that would "imply altering the size, pace and composition of our measures."

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