Monday, June 3, 2013

Australia holds rate, still scope for easing if required

    Australia's central bank left its cash rate unchanged at 2.75 percent, saying the current easy policy stance should help economic growth slowly strengthen but the current outlook for inflation "may provide scope for further easing, should that be required to support demand."
    The Reserve Bank of Australia (RBA), which has cut rate by 200 basis points since October 2011, most recently by 25 basis points in May, said further effects of that easing can be expected over time but the pace of borrowing remains relatively subdued so far, though there has been some signs on increased demand for finance by households.
    In May the RBA also said the outlook for inflation would afford its scope for further easing.
    It also said in May that the exchange rate of the Australian dollar was at a historical high level and repeated today that despite its recent depreciation,  it was still high given lower export prices.
     "The exchange rate has depreciated since the previous Board meeting, although, as the Board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half," the RBA said today, quoting its governor, Glenn Stevens.
   Since the RBA's rate cut on May 6, the Australian dollar has depreciated by 5 percent against the U.S. dollar. The A$ was quoted at 0.97 to the U.S. dollar today.

    The RBA said economic growth over the past year has been a bit below trend with unemployment edging higher and growth in labour costs moderating. Inflation is consistent with the bank's' medium-term target and is expected to remain so over the next one to two years.
    Australia's Gross Domestic Product rose by a quarterly 0.6 percent in the fourth quarter of 2012 from the third, for annual growth of 3.1 percent.
    Global growth is still running a bit below average this year, the RBA said, with reasonable prospects of a pick-up next year. While commodity prices have declined, they remain high by historical standards. But global inflation has moderated in recent months.
    In the first quarter of 2013, Australia's inflation rate rose to 2.5 from 2.2 percent in the fourth quarter. The RBA targets inflation of 2-3 percent.
    The RBA said financial conditions internationally were very accommodative and despite the recent rise in sovereign bond yields, "funding conditions for sovereigns, well-rated corporates and most financial institutions remain very favourable."


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