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Growth slowdown signals rate halt

By webmaster
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A leading indicator of economic growth has reported a slowdown, adding weight to expectations of another RBA rate hold in September.

According to the latest Westpac–Melbourne Institute Leading Index released yesterday, the annualised growth rate, which indicates the likely pace of economic activity three to nine months ahead, fell from a peak of 9.1 per cent in April to 6 per cent in June this year.

Westpac chief economist Bill Evans said the major was confident the Reserve Bank of Australia (RBA) would decide to keep rates on hold next month.

“The evidence, from yesterday's minutes of the [RBA] board meeting on August 3, is clear that the board is currently in a ‘wait and see’ mode,” he said.

According to Mr Evans, factors including a drop in inflation, slowed consumer activity and an uncertain outlook will force the RBA to hold rates for the fourth consecutive month.

Mr Evans said a rate halt would influence an upswing in domestic spending, which would in turn encourage the RBA to maintain its above trend growth forecast for 2011.

“With that in mind and with, at best, inflation bottoming out in the top half of the target zone, we expect the Bank to resume its tightening cycle in the first quarter of 2011,” he said.

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