By CentralBankNews.info
Australia’s central bank left its benchmark cash rate at 1.50 percent for the eight consecutive month, as expected, and confirmed its neutral guidance of future rate decisions by saying the current rate was “consistent with sustainable growth in the economy and achieving the inflation target over time.”
The Reserve Bank of Australia (RBA), which cut its rate by a total of 50 basis points last year, most recently in August, also reiterated that the depreciation of the Australian dollar – known as the Aussie – since 2013 had helped the economy shift away from relying on mining investments but “an appreciating exchange rate would complicate this adjustment.”
The Australian dollar has been trending higher since January 2016 but remains far below par to the U.S. dollar that was seen from 2011 to early 2013.
Today the Australian dollar, known as the Aussie, was trading at 1.316 to the U.S. dollar, up 5.5 percent since the start of this year.
Australia’s economy is still transitioning following the end of the mining boom and grew by around 2-1/2 percent in 2016 as exports rose strongly while business investment improved.
Australia is a major exporter of iron ore, coal, gold, crude oil and natural gas, with the gradual rise in prices last year, following a slump in 2014, improving its terms of trade and thus export earnings.
“The outlook continues to be supported by the low level of interest rates,” the RBA said, adding that data points to continued expansion in employment although the situation various across the country.
Economic growth accelerated to an annual rate of 2.4 percent in the fourth quarter of last year form 1.9 percent in the third quarter and the central bank currently forecasts growth in the year to June of 1.5 percent.
By late 2017, the economy is expected to accelerate to growth of 2.5 to 3.5 percent, according to its latest quarterly monetary policy statement.
Australia’s inflation rate is expected to continue to stay low for some time but pick up during the year to above 2 percent.
The inflation rate rose to 1.5 percent in the fourth quarter of 2016 from 1.3 percent in the previous quarter for the highest rate since the last quarter in 2015.
The RBA projects inflation will not return to its 2-3 percent target range until the June quarter of 2019 as spare capacity in the labour market surpasses wage and price pressures.
The Reserve Bank of Australia issued the following statement by its governor, Philip Lowe:
“At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
Australia maintains rate and neutral guidance
March 7, 2017
Conditions in the global economy have continued to improve over recent months. Business and consumer confidence have both picked up. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income.
Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Long-term bond yields are higher than last year, although in a historical context they remain low. Interest rates are expected to increase further in the United States and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and stock markets have mostly risen.
The Australian economy is continuing its transition following the end of the mining investment boom, expanding by around 2½ per cent in 2016. Exports have risen strongly and non-mining business investment has risen over the past year. Most measures of business and consumer confidence are at, or above, average. Consumption growth was stronger towards the end of the year, although growth in household income remains low.
The outlook continues to be supported by the low level of interest rates. Financial institutions remain in a good position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.
Labour market indicators continue to be mixed and there is considerable variation in employment outcomes across the country. The unemployment rate has been steady at around 5¾ per cent over the past year, with employment growth concentrated in part-time jobs. The forward-looking indicators point to continued expansion in employment over the period ahead.
Inflation remains quite low. With growth in labour costs remaining subdued, underlying inflation is likely to stay low for some time. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent, with the rise in underlying inflation expected to be a bit more gradual.
Conditions in the housing market vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades. Borrowing for housing by investors has picked up over recent months. Supervisory measures have contributed to some strengthening of lending standards.
Taking account of the available information the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
