Monday, September 1, 2014

Australia maintains rates, still sees period of stable rates

    Australia's central bank maintained its benchmark cash rate at 2.50 percent, as widely expected, and repeated its previous quidance that "on present indications, the most prudent course is likely to be a period of stability in interest rates."
    The Reserve Bank of Australia (RBA), which has held its rate steady since August 2013, changed its description of the exchange rate of the Australian dollar, saying it "remains above most estimates of its fundamental value" given the declines in commodity prices, a statement that seems slightly softer than in past months when it had said exchange rate "remains high by historical standards."
    However, Glenn Stevens, governor of the RBA, still repeated that the exchange rate of the dollar - known as the Aussie - was "offering less assistance than would normally be expected in achieving balanced growth in the economy."
    But Stevens also pointed to a gradual improvement in business conditions and some recovery in household sentiment, suggesting moderate growth in the economy although investment in the resources sector was starting to decline significantly.
    "Overall, the Bank still expects growth to be a little below trend over the year ahead," Stevens said.

    He added that it would probably be some time yet before unemployment declines consistently and growth in wages had declined noticeably and is expected to remain modest in the period ahead, which should keep inflation consistent with the bank's target, even with a lower level of the exchange rate.
    Credit growth had also started to pick up a little, including to businesses and the increase in home prices also continues, he added.
    Economists expect the RBA to maintain its rate for at least this year but are starting to look for signs that it is becoming more optimistic about the future.
    Australia's Gross Domestic Product expanded by 1.1 percent in the first quarter of the year from the previous quarter for annual growth of 3.50 percent, up from a rate of 2.7 percent in the fourth quarter.
    Inflation picked up speed in the second quarter to 3.0 percent from 2.9 percent in the first quarter, but still within the RBA's 2-3 percent target.
    The exchange rate of the Australian dollar has been largely stable in recent months, but is still firmer than at the start of the year. It was quoted at 1.075 to the U.S. dollar today, up from 1.12 at the start of the year.
    Internationally, Stevens said the global economy was continuing to expand at a moderate pace and China's growth remains generally in line with the objectives of its policy makers, though weakening property markets are a challenge in the near term.
   Stevens also echoed the concern voiced by many other central bankers that volatility in many financial prices was unusually low, with markets attaching a very low probability to any rise in global interest rates of other adverse event over the period ahead.


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