RBA Signals Economy Weathering EU Crisis

Australia’s central bank said an “investment boom” is helping the economy withstand Europe’s debt crisis, sending the local currency higher as traders reduced bets on the scale of future interest-rate cuts. The Reserve Bank of Australia saw no “strong need” based on the domestic outlook to lower interest rates Dec. 6, when it reduced borrowing costs because of a “a non-trivial possibility of a very sharp contraction” in Europe, according to minutes of the meeting released today. The Australian dollar advanced as the central bank said “solid growth” among trading partners is supporting an expansion in the only Group of 10 nation to avoid the 2009 worldwide recession. “The December cut was the RBA’s insurance policy,” said Paul Brennan, a senior economist at Citigroup Inc. in Sydney. “The minutes show that the decision to cut interest rates was not taken lightly. Instead, there appears to have been some deliberation about the need to cut rates at all.” Traders pared bets on the chances of a 50 basis-point reduction at the next meeting in February to 36 percent after the release from 42 percent yesterday, interbank cash-rate futures showed.