/www.bloomberg.com/ By Victoria Batchelor
Sydney, Nov. 5 (Bloomberg) -- Australia's central bank board met today and probably kept interest rates unchanged for a fifth month because of a worsening drought and slowing global economic growth.
All 22 economists surveyed by Bloomberg News expect the Reserve Bank of Australia to keep its overnight cash target rate at 4.75 percent when it announces its decision tomorrow at 9:30 a.m., Sydney time.
Weaker global demand is lowering earnings at exporters such as BHP Billiton, the world's largest miner, and a drought covering one- third of the nation has cut production of wheat and barley. The trade deficit widened to the largest in two years in September because of a slump in exports.
``While the Australian economy has performed well in recent years, we are still vulnerable to the effects of negative world events,'' John Symond, managing director of Aussie Home Loans Ltd., the nation's largest non-bank lender, said in a statement.
``Mortgage rates will remain low until at least the end of next year.''
Analysts and investors have been scaling back expectations of rate increases because of the faltering global economy and a slump in stock prices. A month ago, 11 of 22 economists forecast a rate increase by the end of the year. Now, just one economist expects a December increase. The central bank raised its benchmark rate a quarter point in May and again in June.
The implied yield on the March 2003 bank-bill futures was at 4.80 percent at 2:20 p.m., Sydney time. That signals investors expect rates to be kept unchanged until at least the end of the first quarter of next year.
`Global Headwinds'
``The intensifying global headwinds and worsening drought are likely to see the bank keep rates unchanged in coming months,'' said Su-Lin Ong, senior economist at RBC Capital Markets.
Exports make up a fifth of the economy. A drought may cost the world's biggest beef and wool exporter A$5.4 billion ($3 billion), which is 42 percent more than expected five weeks ago, a government agency said last week.
Yesterday, BHP Billiton said the world economy should avoid a recession, though it may slow again before recovering.
``Growth in the near term will be below average and the risks remain on the downside,'' Chairman Don Argus told shareholders.
Melbourne-based BHP Billiton said last week its first-quarter profit dropped 9 percent to $553 million as it cut copper output because of weak demand. The company said it doesn't expect an improvement this quarter.
The economy expanded 3.8 percent in the year ended June 30 as consumer spending rose and a housing boom fueled construction. That prompted the central bank to raise interest rates two times this year to ward off inflation.
The Australian Bureau of Agricultural & Resource Economics said economic growth may slow to 3.1 percent in the year ending June 30, 2003, because of the drought.