Monday, May 5, 2014

Australia maintains rate, still sees period of stable rates

    Australia's central bank left its benchmark cash rate unchanged at 2.50 percent, as widely expected, and reiterated that "the most prudent course is likely to be a period of stability in interest rates" as the current accommodative policy stance should help foster growth in demand and keep inflation consistent with the bank's target.
    The Reserve Bank of Australia (RBA), which has held rates steady since August last year, also repeated that the exchange rate of the Australian dollar, known as the Aussie, "remains high by historical standards" but the decline in its value over the last year should still help in achieving balanced growth in the economy.
    The Aussie fell sharply in April 2013 from around 95 cents to the U.S. dollar and hit a recent low of 1.15 to the dollar in mid-January. But since then it has bounced back, trading around 1.07 today.
    Australia's headline inflation rate rose to 2.9 percent in the first quarter of this year from 2.7 percent in the fourth quarter of 2013 while the core rate rose to 2.73 percent from 2.64 percent.
    The price rise was less than expected, leading economists to expect that the RBA will revise downward its inflation forecast later this week.
    RBA Governor Glenn Stevens said in a statement that if domestic costs remain contained, inflation should remain consistent with the bank's 2.0 to 3.0 percent target over the next one to two years, even with the lower level of the exchange rate.

    In February the RBA forecast core inflation of 3 percent in the current fiscal year ending in June and at 2.25 to 3.25 percent through December.
    Australia's economy, which slowed in 2013 in response to lower demand for its raw materials and mining products, is showing signs of improvement and Stevens said consumer demand was growing moderately, foreshadowing a strong expansion in housing construction.
    And while exports and confidence are improving, Stevens said investment in the resources sector is set to decline significantly and signs of a pick-up in investment in other sectors is only tentative.
    Demand for labor therefore remains weak and Stevens predicted its would be some time before unemployment declines consistently. In March the jobless rate eased to 5.8 percent from 6.0 percent in February and January.
    Australia's Gross Domestic Product expanded by 0.8 percent in the fourth quarter of 2013 from the third quarter for annual growth of 2.8 percent, up from 2.3 percent in the third quarter.  For the full year, GDP rose by 2.4 percent, down from 3.6 percent in 2012.
    While growth in the global economy was below trend last year, Stevens said there "are reasonable prospects of a better outcome this year, helped by firmer conditions in the advanced countries."
    Growth in China, a key importer of Australian raw materials, appears to have slowed a little early this year, but Steven said it remains in line wit policymakers' objectives. Commodity prices remain high in historical terms, though some of the prices of products important to Australia have softened.


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