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Australia Holds Key Rate as Divergence Weighs on Currency

  • Tuesday’s decision was predicted by all economists surveyed
  • Aussie bonds are now yielding less than U.S. Treasuries
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Bloomberg’s Paul Allen explains why Australia’s central bank left interest rates unchanged.(Source: Bloomberg)
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Australia’s central bank left interest rates unchanged as its increasing policy divergence from global peers weighs on the currency, potentially aiding economic growth and inflation.

Reserve Bank of Australia Governor Philip Lowe and his board kept the cash rate at a record-low 1.5 percent Tuesday, in line with market and economists’ expectations. They’re trying to prolong a hiring boom and soak up spare capacity in the labor market in order to generate faster wages growth. The RBA chief signaled he’s seeing some progress.