Monday, June 2, 2014

Australia maintains rate, sees period of stable rates

    Australia's central bank left its benchmark cash rate steady at 2.50 percent, as expected, and repeated that "the most prudent course is likely to be a period of stability in interest rates."
    The Reserve Bank of Australia (RBA), which has maintained its rate since August 2013, also repeated that the exchange rate of the Australian dollar "remains high by historical standards."
    The previous decline in the exchange rate was still helping achieve balanced growth in the economy, but less so than previously due to a rise in the exchange rate in the past few months, the RBA added.
    The Australian dollar, known as the "Aussie" fell sharply in April 2013 from around 95 cents to the U.S dollar to hit a recent low of 1.15 to the dollar in mid-January this year. But since then it has rebounded, trading at 1.08 today, up 3.6 percent this year.
    "Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time," the RBA said. Economists first expect the central bank to tighten its policy stance well into 2015.
    The RBA sounded a bit more optimistic about the outlook for economic growth than in recent months, saying growth looks to have been somewhat firmer around the turn of the year due to strong increases in resource exports from new capacity that has come on stream and there has been moderate growth in consumer demand and a strong expansion in housing construction is now under way.

    However, RBA Governor Glenn Stevens cautioned that investment in the resources sector was still set to decline significantly and investment intentions in other sectors remain tentative.
    Australia's Gross Domestic Product expanded by 0.80 percent in the fourth quarter of 2013 from the third quarter for annual growth of 2.8 percent, up from 2.3 percent growth in the third quarter.
    And while there has been some improvement in the labour market, Stevens said it would be some time yet before unemployment declines consistently and growth in wages has declined, helping inflation remain consistent with the RBA's 2.0 to 3.0 percent target over the next one to two years, even with lower levels of the exchange rate.
    In February the RBA forecast core inflation of 3.0 percent in the current fiscal year ending in June and at 2.25 to 3.25 percent through December.
     Australia's core inflation rate rose to 2.73 percent in February from 2.64 percent while headline inflation rose to 2.9 percent in the first quarter from 2.7 percent.


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