Australia holds rate, fresh data to determine next move

September 1, 2015

By CentralBankNews.info
    Australia’s central bank left its benchmark cash rate steady at 2.00 percent, as widely expected, repeating its recent guidance that fresh economic data will guide its outlook and determine whether the current policy stance “will most effectively foster sustainable growth and inflation consistent with the target.”
    The Reserve Bank of Australia (RBA), which has cut its rate by a total of 50 basis points this year, also repeated its comment from its previous board meeting that the “Australian dollar is adjusting to the significant declines in key commodity prices,” omitting any reference for the need of further depreciation of the exchange rate.
    The Australian dollar, known as the Aussie, started depreciating in September 2014 and has now fallen to levels not seen since April 2009. In response to the RBA’s latest statement, the Aussie firmed slightly to 1.399 to the U.S. dollar from around 1.40, but is still down 12.8 percent this year.
    In his statement, RBA Governor Glenn Stevens acknowledged the “further softening in conditions in China and east Asia of late,” but added that growth the United States was stronger and contrasted the recent volatility in equity markets from developments in China with relative stability in other financial markets.
    However, Stevens also said key commodity prices were “much lower than a year ago,” resulting in falling terms of trade for Australia.
    Australia’s economy is continuing to expand moderately, Steven said, with spare capacity likely to continue for “some time yet,” and inflationary pressures are contained so inflation will remain consistent with the RBA’s target for the next one to two years, even with a lower exchange rate.
    Australia’s inflation rate rose slightly to 1.50 percent in the second quarter of the year from 1.3 percent in the first quarter, still well below the RBA’s target of 2 to 3 percent.
    “In such circumstances, monetary policy needs to be accommodative,” Stevens said, adding that house prices in Sydney continue to rise strongly and the central bank was working with other regulators to contain any risks that may arise from the housing market.

 
    The Reserve Bank of Australia 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 2.0 per cent.
The global economy is expanding at a moderate pace, with some further softening in conditions in China and east Asia of late, but stronger US growth. 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 policy. Equity markets have been considerably more volatile of late, associated with developments in China, though other financial markets have been relatively stable. Long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low. Overall, global financial conditions remain very accommodative.
In Australia, most of the available information suggests that moderate expansion in the economy continues. While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.
In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and 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 lower and been more volatile recently, in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.
The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”