/www.bloomberg.com/By Victoria Batchelor
Sydney, Oct. 1 (Bloomberg) -- Australia's central bank met today and probably to kept its benchmark interest rate unchanged for a fourth month because of a slump in stock markets and a global economic slowdown, economists said.
All 22 economists surveyed by Bloomberg News expected the Reserve Bank of Australia to keep its overnight cash target rate at 4.75 percent. The bank announces its decision at 9:30 a.m., Sydney time, tomorrow.
The economy has been expanding about 4 percent annually, prompting the central bank to raise interest rates two times this year to ward off inflation. Those rate increases have now come to a halt as economic threats from offshore mount, economists say.
``The fragility in global markets leaves the high uncertainty about the outlook for world economic growth in place,'' said Anthony Thompson, senior economist at HSBC Bank Australia Ltd. ``Before that turns around, it's difficult for the central bank to provide the interest-rate increases the economy needs.''
The central bank doesn't release a statement if rates are left unchanged.
The strength of Australia's economy was underpinned in a report today that showed building approvals unexpectedly surged 23.1 percent in August to the highest level in eight years. Another report showed retail sales rose 0.2 percent in August, following a 0.2 percent drop in July.
Global Risks
``In any other situation we would be calling for an immediate rate increase,'' said Annette Beacher, an economist at Salomon Smith Barney/Citibank Ltd. ``But it is a tough environment out there -- we expect a 25 basis points rate rise in November.''
The strength of the global economy is important to Australia because exports account for about one-fifth of economic production.
The threat of a U.S. military strike on Iraq is likely to keep oil prices high, cutting household disposable incomes. Oil prices were close to a 19-month high of $31.39 a barrel last week.
Weakening global stock markets will damp consumer confidence and erode wealth, economists said. In the third quarter, the U.S. Standard & Poor's 500 Index and Dow Jones Industrial Average had their largest quarterly losses since the 1987 crash. Australia's S&P/ASX 200 index fell 1.3 percent today, taking its losses this year to 13.2 percent.
Economists Divided
Economists are split on whether the Reserve Bank of Australia will raise interest rates this year, with 11 predicting a quarter percentage point increase by December, 10 forecasting rates will be kept unchanged and one expecting a cut.
Reserve Bank Governor Ian Macfarlane said it's crucial for the central bank to act preemptively on rates, the Australian Financial Review reported today, citing an interview the central bank chief gave in the U.S.
``If you ever get to a point where you don't get criticism for putting interest rates up, you can be pretty confident that you are six months late,'' the newspaper quoted Macfarlane as saying.
Australia's central bank raised its benchmark rate a half percentage point this year to ward off inflation as consumer spending rose and residential construction boomed.
Bloomberg Survey
Oct. Year End June 2003
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ABN Amro 4.75% 5.0% 5.75%
AMP 4.75% 5.0% 5.25%
ANZ Bank 4.75% 5.0% 5.5%
BT Funds 4.75% 4.75% 5.25%
Commonwealth Bank 4.75% 5.0% 5.5%
CSFB 4.75% 4.75% 4.75%
Deutsche Bank 4.75% 4.75% 5.25%-5.5%
HSBC 4.75% 5.0% 5.5%
ICAP Australia 4.75% 5.0% 5.25%
JBWere 4.75% 4.75% 5.0%
J.P. Morgan 4.75% 5.0% 5.5%
Macquarie Bank 4.75% 4.75% 5.0%
Merrill Lynch 4.75% 4.75% 5.25%
National Australia 4.75% 5.0% 5.5%
Nomura Australia 4.75% 5.0% 5.25%
RBC Capital Markets 4.75% 4.75% 5.25%
Salomon/Citibank 4.75% 5.0% 5.5%
SG Australia 4.75% 4.75% 5.0%
St.George Bank 4.75% 5.0% 5.5%
TD Securities 4.75% 4.5% 4.25%
UBS Warburg 4.75% 4.75% ---
Westpac Banking 4.75% 4.75% 4.75%