Tuesday, November 3, 2015

Australia holds rate, sees firmer economy, scope to ease

    Australia's central bank left its benchmark cash rate steady at 2.0 percent, saying the prospects for improved economic conditions had "firmed a little over recent months," but the outlook for inflation may "afford scope for further easing of policy, should that be appropriate to lend support to demand."
    While the Reserve Bank of Australia's (RBA) reference to improved economic conditions and scope for easing is new, it also repeated that it would continue to assess the outlook to determine whether the current policy stance was consistent with its targets for growth and inflation.
    In his statement, RBA Governor Glenn Stevens acknowledged the recent increase in home loan rates as "slightly" reducing the support to borrowing and spending, but added that overall financial condition were "still quite accommodative."
    A hike in as mortgage rates by some of Australia's banks had ignited speculation the RBA would cut rates to counter any monetary tightening.
    However, Stevens also said surveys had suggested a "gradual improvement" economic conditions over the past year, a slightly more upbeat view than in recent months when Stevens merely said that the moderate economic expansion was continuing, accompanied by rising employment.
    Stevens also appeared more optimistic about the rise in house prices in Melbourne and Sydney, saying the pace of growth had moderated of late. In recent months the RBA also only said that house prices were continuing to rise strongly in the country's two largest cities.
    Australia's inflation rate was steady at 1.5 percent in the third and second quarters while Gross Domestic Product expanded by only 0.2 percent in the second quarter from the first for annual growth of 2.0 percent, down from 2.5 percent in the first quarter.
   The unemployment rate was unchanged at 6.2 percent in September.

    The Reserve Bank of Australia issued the following statement by its governor, Glenn Stevens"

"At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, with some further softening in conditions in the Asian region, continuing US growth and a recovery in Europe. Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia's terms of trade are falling.
The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease monetary policy. Volatility in financial markets has abated somewhat for the moment. While credit costs for some emerging market countries remain higher than a year ago, global financial conditions overall remain very accommodative.
In Australia, the available information suggests that moderate expansion in the economy continues. While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions over the past year. This has been accompanied by somewhat stronger growth in employment and a steady rate of unemployment.
Inflation is low and should remain so, with the economy likely to have a degree of spare capacity for some time yet. Inflation is forecast to be consistent with the target over the next one to two years, but a little lower than earlier expected.
In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative. Credit growth has increased a little over recent months, with growth in lending to investors in the housing market easing slightly while that for owner-occupiers appears to be picking up. Dwelling prices continue to rise in Melbourne and Sydney, though the pace of growth has moderated of late. Growth in dwelling prices has remained mostly subdued in other cities. Supervisory measures are helping to contain risks that may arise from the housing market.
In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.
At today's meeting the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate at this meeting. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. The Board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target."


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