Australia Holds Cash Rate Steady at 2.5%


At its November 4th, 2014 meeting, the Reserve Bank of Australia decided to keep the cash rate unchanged at a record low of 2.5 percent, as growth is likely to stay a little below trend for the next several quarters, while credit growth is moderate overall but with a further pick-up in recent months.

The central bank also said growth in wages is expected to remain relatively modest over the period ahead. Further, it considered the weakening property market in China had presented a challenge in the near term for Australia.

Excerpt from the statement by Glenn Stevens, Governor:

In Australia, most data are consistent with moderate growth in the economy. Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates. Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend for the next several quarters.

Recent data on prices confirmed that inflation is running between 2 and 3 per cent, as expected, and this is likely to continue. Although some forward indicators of employment have been firming this year, the labour market has a degree of spare capacity and it will probably be some time yet before unemployment declines consistently. Hence, growth in wages is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and have continued to edge lower over the past year or so as competition to lend has increased. Investors continue to look for higher returns in response to low rates on safe instruments. Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Dwelling prices have continued to rise.

The exchange rate has traded at lower levels recently, in large part reflecting the strengthening US dollar. But the Australian dollar remains above most estimates of its fundamental value, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.

Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.

Australia Holds Cash Rate Steady at 2.5%


RBA l Rida l rida@tradingeconomics.com
11/4/2014 10:51:34 AM