RBA keeps cash rate unchanged for second month in face of below-trend Australian growth

Tuesday 7th July 2015

The Reserve Bank of Australia kept its cash rate unchanged at a record low 2 percent for a second month, saying accommodative monetary policy is needed in an economy growing slower than its long-term average, with spare capacity and little wage inflation.

Governor Glenn Stevens said the central bank kept its benchmark rate at a record low to support borrowing and spending, and against a backdrop of moderate global economic growth. He noted fluctuations in markets related to developments in China and Greece, the first time he has name-checked the Mediterranean nation.

"Information on economic and financial conditions to be received over the period ahead will inform the board's assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target," Stevens said, repeating the language of his statement last month.

He reiterated that the Australian dollar "has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies," and repeated that "further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices."

The Australian dollar traded at 74.72 US cents, initially spiking about 20 points before subsiding to be little changed from before the RBA statement, and down from about 76.20 cents a month ago. The kiwi dollar fell to 89.08 Australian cents from 89.29 cents before the statement. The Reserve Bank of New Zealand reviews the official cash rate on July 23 and traders see a 98 percent chance that it will cut the OCR from the current 3.25 percent. In the next 12 months, traders see the RBNZ cutting by 62 basis points and the RBA by just 21 basis points.

"In Australia, the available information suggests that the economy has continued to grow over the past year, but at a rate somewhat below its longer-term average," Stevens said. "The rate of unemployment, though elevated, has been little changed recently. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate."

BusinessDesk.co.nz

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