Monday, November 3, 2014

Australia maintains rate and guidance of stable rates

    Australia's central bank maintained its benchmark cash rate at 2.50 percent, as expected, and repeated its guidance 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 maintained its key rate since August 2013, also said data are consistent with moderate growth in the economy and continued accommodative monetary policy should help strengthen demand and growth while inflation is expected to remain in line with the bank's 2 -3 percent target over the next two years.
    As in recent months, the RBA repeated that the Australian dollar remains above most estimates of its fundamental value and is offering less assistance than would normally be expected in achieving balanced growth in the economy.
    But the RBA also acknowledged that the exchange rate of the Australian dollar had recently traded at lower levels, mainly due to the stronger U.S. dollar. The Australian dollar was trading at 1.15 to the U.S. dollar today, slightly down from 1.12 at the start of the year but sharply below its level in 2011 through 2013 when it was trading above 1 to the U.S dollar.
    The RBA issued the following statement:


"Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.
Growth in the global economy is continuing at a moderate pace. China's growth has generally been in line with policymakers' objectives, though weakening property markets there present a challenge in the near term. Commodity prices in historical terms remain high, but some of those important to Australia have declined further in recent months.
Volatility in some financial markets has picked up over the past couple of months. Overall, however, financial conditions remain very accommodative. Long-term interest rates and risk spreads remain very low. Markets still appear to be attaching a low probability to any rise in global interest rates or other adverse event over the period ahead.
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."

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