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Australia's central bank keeps rates on hold, ‘uncomfortably high' currency falls after statement

Tuesday 5th November 2013

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The Reserve Bank of Australia kept its cash rate unchanged as expected while noting that its currency is "uncomfortably high". The Australian dollar fell against the greenback and the kiwi after the statement.

Governor Glenn Stevens delivered a statement broadly similar to his announcement on Oct. 1 while noting changes overseas and in the domestic economy and giving added emphasis to the strong Australian dollar.

"The Australian dollar, while below its level earlier in the year, is still uncomfortably high," Stevens said. "A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy." In last month's statement he only noted that the currency "rose recently."

The Australian dollar fell to 94.80 US cents after the statement from 94.98 cents immediately before. The kiwi dollar climbed to 87.21 Australian cents from 86.98 cents.

Stevens also revised his take on financial markets, saying in the latest statement that volatility "has abated recently" compared to his wording on Oct. 1 that volatility had increased because of changes in the outlook for US monetary policy.

While repeating that unemployment had edged higher he added that a high jobless rate was "likely to persist in the near term." He also added a new expectation, that private demand outside of the mining sector was "expected to increase at a faster pace" though with the outlook uncertain.

The latest statement also notes that public spending "is forecast to be quite weak," suggesting Australia's new government has been in power long enough for the central bank to make a judgement call about policy. Stevens also said housing and equity markets "have strengthened further, trends which should in time be supportive of investment."

BusinessDesk.co.nz

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