RBA keeps cash rate at 2%, drops talk of 'necessary' currency decline

Tuesday 4th August 2015

The Reserve Bank of Australia kept its cash rate unchanged at a record low 2 percent for a third month, while dropping reference to its currency needing to decline further. The Australian dollar gained after the statement.

Governor Glenn Stevens kept much of the previous month's language in his latest monetary policy decision statement, while adding that there had been "somewhat stronger growth of employment" and omitting reference to "stronger borrowing by businesses" that he used four weeks ago.

The biggest change was his comment on the Australian dollar, which he said "is adjusting to the significant declines in key commodity prices". Last month he said further depreciation in the currency "seems both likely and necessary", especially given the decline in key commodity prices.

The Australian dollar rose to 73.19 US cents from 72.91 cents immediately before the statement. In the past months the Australian dollar has fallen 5 percent against the greenback. The kiwi dollar fell to 89.79 Australian cents from 90.02 cents.

"Overall, the economy is likely to be operating with a degree of spare capacity for some time yet," Stevens said. "Recent information confirms that domestic inflationary pressures have been contained. That should remain the case for some time, given the very slow growth in labour costs. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate."

He reiterated that monetary policy needs to be accommodative. "Low interest rates are acting to support borrowing and spending," he said. "Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months."

BusinessDesk.co.nz

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