Bank catches analysts on hop with hold on interest rates

SYDNEY - Australia's central bank unexpectedly paused in raising interest rates as Governor Glenn Stevens opted to support the economy's acceleration and stem inflation later. The Reserve Bank of Australia kept the overnight cash rate target at 3.75 per cent after three increases. The decision confounded the forecast of all 20 economists in a Bloomberg News survey for a quarter-point move, and futures contracts that signalled a 74 per cent chance of an increase. Australia's dollar tumbled to a six-week low of US87.94c and Asian stocks pared gains after yesterday's announcement sparked concern at the economy's ability to withstand higher borrowing costs. Business confidence fell to a six-month low, a report showed yesterday, and Woolworths, the country's biggest retailer, warned last week that rate increases would hurt consumers. "The rapid adjustment process is over and the rate hikes, when they do come, will be further apart," said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. "The overarching message from the Reserve Bank is that while things are better than we thought, we're not out of the woods just yet." As information about the impact of the bank's previous increases "is still limited, the board judged it appropriate to hold a steady setting of monetary policy for the time being", Stevens said. Borrowing costs will be "adjusted further" to keep inflation within the central bank's target range of 2 per cent to 3 per cent "if economic conditions evolve broadly as expected", he said, adding that inflation should remain within the target this year. Stevens became the first central banker in the world to raise borrowing costs three times last year after Australia's economy skirted the global recession, helped by A$20 billion ($25 billion) in cash handouts to consumers from Prime Minister Kevin Rudd and another A$22 billion in spending on roads, railways and schools. Source:nzherald.co.nz/