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RBA keeps key rate at 2.25%, kiwi dollar retreats

07 Apr 15

The Reserve Bank of Australia held its cash rate unchanged at a record low, surprising market participants who had been betting on a further cut and driving up the Australian dollar.

The central bank kept the cash rate at 2.25 percent in a statement that was broadly unchanged from the views it gave on March 3. Governor Glenn Stevens reiterated that "further easing may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target."

The Australian dollar jumped to 76.82 US cents from 75.99 cents immediately before the statement. The kiwi dollar tumbled to 98.15 Australian cents from 99.11 cents, having traded as high as a record 99.78 cents yesterday. Australian shares fell after the statement, with the S&P/ASX 200 Index dropping to 5913.30 from 5957.700.

"In Australia the available information suggests that growth is continuing at a below-trend pace, with overall domestic demand growth quite weak as business capital expenditure falls," Stevens said.

Heading into today's decision, traders had been betting on a more-than 70 percent chance of a rate cut today. Traders see 56 basis points of cuts over the next 12 months, based on the Overnight Interest Swap curve.

Since the last RBA statement on March 3, government figures have shown the jobless rate at 6.3 percent in February, the ninth straight month that it has been above 6 percent. The Australian economy has been hurt by a slump in iron ore and coal prices and a downturn in resources sector investment. By contrast, house prices in Sydney, Australia's biggest city, have soared, although those gains haven't been shared by other centres.

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