Sydney, Dec. 3 (Bloomberg) -- Australia's central bank board met today for the last time this year and probably kept interest rates unchanged for a sixth month because of a worsening drought and faltering global economic growth. Twenty-two of 23 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. The bank raised borrowing costs a quarter percentage point in May, and again in June. Analysts and investors scaled back expectations of rate increases in Australia, where the economy has been growing almost 4 percent annually, because exports have been hit by the faltering global economy and drought. Two months ago, 11 of 22 economists forecast a rate increase by the end of the year. ``The external risks to the Australian economy and the worsening drought mean the central bank is unlikely to change interest rates for some time,'' said Michael Blythe, chief economist at Commonwealth Bank of Australia.
``The next move in interest rates still looks to be up, with the economy likely to bounce back from a flat patch early in 2003.'' The implied yield on the March 2003 bank-bill futures was at 4.77 percent at 2:10 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. ``With all the major risks for slower growth, the Reserve Bank of Australia is on hold until the global uncertainties abate,'' said Tony Pearson, head of market economics at National Australia Bank Ltd.
Macfarlane Testimony
``As we are relatively optimistic on the international front, we consider the next move in rates to be up,'' Pearson said. ``Still, a rate rise is unlikely to occur before the second half of 2003.'' A report today showed retail sales unexpectedly fell 0.3 percent in October from a month earlier. That suggests consumer spending, which accounts for two-thirds of the economy, may not drive growth as much as it has. Separately, building approvals surged 25.3 percent from September, signaling a housing boom is showing few signs of waning.
The central bank doesn't release a statement explaining its decision if rates are unchanged. Still, bank Deputy Governor Glenn Stevens is speaking on Wednesday in Sydney to an economists' dinner on ``Inflation, Deflation and All That.'' He may provide clues on the central bank's view on the economy and interest rates. As well, Reserve Bank Governor Ian Macfarlane gives a half- yearly testimony to a parliamentary committee on Friday in the rural city of Warrnambool, Victoria, from 9:30 a.m., Sydney time. He will comment on the economy and global economic growth, which may provide an indication on the outlook for interest rates.
Drought Concerns
Last week, the government cut its forecast for economic growth in the year ending June 30, 2003, to 3 percent from its May prediction of 3.75 percent. It blamed drought cutting farm production and the global slowdown. Exports make up a fifth of the economy and the outlook for growth in the U.S., which is Australia's second-largest export market, has weakened this year. An El Nino-induced drought across 70 percent of Australia has cut wheat, milk and wool production and lowered cattle prices. Australia's summer crop production will be the lowest in 20 years, the government forecaster said yesterday. 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.//www.quote.bloomberg.com