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Australia's central bank says currency may extend slide, keeps easing bias

Tuesday 2nd July 2013

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The Reserve Bank of Australia said its currency may extend a 10 percent slide since April as the bank maintained its easing bias and kept its benchmark cash rate unchanged at 2.75 percent.

"The Australian dollar has depreciated by around 10 percent since early April, although it remains at a high level," Governor Glenn Stevens said in a statement on the bank's website. "It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy."

The Australian dollar fell to 91.76 US cents after the statement from 92.18 cents immediately before while the kiwi dollar jumped to 84.93 Australian cents from 84.69 cents.

Stevens reiterated much of the words from last month's statement, noting that the inflation outlook is benign enough to allow for a cut in interest rates and is likely to remain consistent with the bank's medium-term target over the next two years, even as the currency weakens.

He noted the economy was growing "a bit below trend."

"This is expected to continue in the near term as the economy adjusts to lower levels of mining investment," Stevens said.

Global growth was "running a bit below average this year" though there were "reasonable prospects" of a pickup in 2014, he said.

"At today's meeting the board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target," he said. "It decided that the stance of monetary policy remained appropriate for the time being."

Global financial conditions "remain very accommodative". Still, "a reassessment by the market of the outlook for monetary policy in the US has seen a noticeable rise in sovereign bond yields from exceptionally low levels," he said. "Volatility in financial markets has increased and there has been some widening of credit spreads."

BusinessDesk.co.nz

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