RBA keeps cash rate at 2%, reiterates scope for easier policy

Tuesday 1st March 2016

The Reserve Bank of Australia kept its cash rate unchanged, while reiterating an easing bias given weak inflation, showing little sign of having revised its position since last reviewing monetary conditions four weeks ago.

Governor Glenn Stevens kept the benchmark interest rate at 2 percent, as expected, reiterating that consumer price inflation is likely to remain low over the next year or two even as the economy continued to expand.

"Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand," Stevens said, repeating the words he used on Feb. 2. "At today's meeting, the board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target."

The Australian dollar rose to 71.27 US cents from 71.17 cents immediately before the release. The New Zealand dollar fell to 92.48 Australian cents from 92.82 cents. Traders don't expect the RBA to move any time soon, with a 76 percent probability the cash rate will be kept at 2 percent at the April 5 meeting, based on the overnight interest swap curve.

Stevens has kept his statements broadly consistent in the past few months, noting the substantial decline in commodity prices in the past two years amid slower growth in demand and increased supply "in some key instances".

He also noted heightened volatility in financial markets "as participants grapple with uncertainty about the economic outlook and policy settings among the major jurisdictions" and that appetite for risk has "diminished somewhat."

Stevens said data suggests that the expansion in the non-mining parts of the Australian economy "strengthened during 2015 despite the contraction of spending in mining investment."

BusinessDesk.co.nz

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