Monday, March 3, 2014

Australia maintains rates, sees period of stable rates

    Australia's central bank maintained its benchmark cash rate at 2.50 percent, as expected, and repeated its guidance from last month that "the most prudent course is likely to be a period of stability in interest rates."
    The Reserve Bank of Australia (RBA), which has kept rates unchanged since August 2013, said its current policy stance was accommodative and the decline in the exchange rate of the Australian dollar will help achieve more balanced growth "though the exchange rate remains high by historical standards."
    During the second half of last year the RBA described the Australian dollar - known as the Aussie - as "uncomfortably high" but this year it has toned down its language in light of its depreciation.
    The Aussie was trading at 1.12 to the U.S. dollar following the RBA's decision, largely unchanged since the start of the year but down almost 13 percent since the end of 2012 when the Aussie was trading at 0.96 to the U.S. dollar.
    The RBA, which last month raised its growth and inflation forecasts reflecting the weaker Aussie, said it expects economic growth to strengthen, helped by continued low interest rates and the lower exchange rate though unemployment is expected to rise further before it peaks.

    Australia's unemployment rate rose to 6.0 percent in January from 5.8 percent in December, continuing the rising trend seen since mid-2012.
    Australia's Gross Domestic Product expanded by only 0.6 percent in the third quarter from the second quarter for annual growth of 2.3 percent, down from 2.6 percent, continuing the trend seen in the last six quarters of declining growth rates.
   But the central bank said recent information suggested slightly firmer consumer demand, which foreshadows a solid expansion in housing construction and some indicators of business conditions and confidence have improved while exports are rising.
    However, investment in the resource sector is set to decline significantly, the RBA said, and signs of improved investment in other sectors remain tentative and public spending remains subdued.
    Weak demand for labor is keeping the unemployment rate rising and if domestic costs remain contained, prices should moderate and keep inflation consistent with the central bank's target of 2-3 percent, the RBA said.
    Australia's inflation rate rose to 2.7 percent in the fourth quarter of 2013, up from 2.2 percent in the third quarter.
    In its latest quarterly monetary policy statement, the RBA forecast core inflation of 3 percent in the fiscal year ending in June, half a point higher than seen three months earlier, and at 2.25-3.25 percent through December 2014.
    GDP is forecast to rise by 2.75 percent in the year to June and 2.25-3.25 percent through December, mainly due to the lower exchange rate that is helping exports and restraining imports.
    The RBA has cut rates by 225 basis points since it stated easing its policy in November 2011, including a cut of 50 basis points in 2013.



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