InDaily InDaily

Support independent Journalism Donate Subscribe
Support independent journalism

Business

Rates on hold - dollar rises

Business

Comments
Comments Print article

The Australian dollar has risen above 93 US cents after the Reserve Bank of Australia left the cash rate unchanged at 2.5 per cent at its board meeting on Tuesday.

At 1435 AEST the currency was worth 93.12 US cents, up from 92.82 US cents shortly before the RBA’s decision was announced and yesterday’s close of 92.80 US cents.

The Reserve Bank of Australia has kept the cash rate at 2.5 per cent and reiterated it will stay unchanged for some time.

The RBA board believes monetary policy is “appropriately configured” to foster sustainable growth in demand and inflation within the bank’s target range of two to three per cent, governor Glenn Stevens said in a statement.

“On present indications, the most prudent course is likely to be a period of stability in interest rates,” he said.

The most recent interest rate movement was a quarter of a percentage point cut in August.

MORE jcc/dmc

Mr Stevens noted concerns about Chinese growth, but said outcomes for other countries appear to be improving.

“China’s growth appears to have slowed a little in early 2014 but remains generally in line with policymakers’ objectives,” he said.

“Commodity prices in historical terms remain high, though some of those important to Australia have softened further of late.”

Local economic conditions have improved, with credit growth and housing prices picking up thanks to record low interest rates, Mr Stevens added.

However, the employment market is still quite weak and the exchange rate is still quite high, he said.

“There has been some improvement in indicators for the labour market, but it will probably be some time yet before unemployment declines consistently,” Mr Stevens said.

“The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months.”

The statement from Mr Stevens was little changed from the previous month, although the central bank’s outlook on the labour market had improved, Commonwealth Bank chief economist Michael Blythe said.

“That period of stability on interest rates is set to continue for a while yet,” he said.

“What is interesting are a few indications that they’re a little bit more positive on the labour market and also a little bit more comfortable on the inflation outlook.”

It also appeared the RBA’s concern with the high Australian dollar had shifted towards rising house prices, Mr Blythe said.

“The jawboning has shifted to the housing market and away from the currency,” he said.

“I think they’ve acknowledged that jawboning the Australian dollar works when the currency is heading in the right direction but it’s obviously reversed course for a range of reasons and jawboning doesn’t work in that sort of environment.”

The only surprise in the statement was that the RBA did not revive its campaign to talk the Aussie dollar down, HSBC chief economist Paul Bloxham said.

“Given inflation has come in a bit lower than expected they had an opportunity to do that, but it seems that they remain more comfortable with the current level of the Aussie dollar than they had been late last year,” he said.

“They talked about the Aussie dollar being high but they didn’t say it was uncomfortably high.”

Mr Bloxham believes the RBA’s “period of interest rate stability” will only last a few more months.

“We do think the economy is turning around fast enough that the RBA will have to lift the cash rate before the end of this year,” he said.

 

Make a comment View comment guidelines

Make your contribution to independent news

A donation of any size to InDaily goes directly to helping our journalists uncover the facts. South Australia needs more than one voice to guide it forward, and we’d truly appreciate your contribution. Please click below to donate to InDaily.

Donate here
Powered by PressPatron

Comments

Show comments Hide comments
Will my comment be published? Read the guidelines.

More Business stories

Loading next article