RBA keeps cash rate at 2% in more upbeat statement; Australian dollar gains

Tuesday 5th April 2016

The Reserve Bank of Australia kept its cash rate at a record low of 2% following a meeting in Hobart with Governor Glenn Stevens saying the economy is rebalancing following the end of the mining investment boom.

In a statement published following the decision, Stevens offered a more upbeat assessment of the economy across the Tasman when compared to previous months. In March, he warned that commodity prices have declined very substantially over the past couple of years and the decline in Australia's terms of trade had continued. Today he said that "commodity prices have generally increased a little recently" although he also observed that "Australia's terms of trade remain much lower than they had been in recent years".

His concerns about funding conditions for businesses also appear to have waned. In March Governor Stevens warned that "Appetite for risk has diminished somewhat and funding conditions for emerging market sovereigns and lesser-rated corporates have tightened", but this line has been omitted from today's release. Stevens instead notes that "Sentiment in financial markets has improved recently after a period of heightened volatility".

However, he also expresses concern that the Australian dollar has appreciated recently, partly due to the increase in commodity prices but also due to monetary policy in other country's around the world. He warns that "under present circumstances, an appreciating exchange rate would complicate the adjustment under way in the economy".

The New Zealand dollar fell to 89.34 Australian cents from 89.82 cents following the publication of the statement, a fall of 0.53 percent.

BusinessDesk.co.nz

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