Australia’s central bank keeps rate steady

  • Economy
  • Tuesday, 01 Aug 2017

The Reserve Bank of Australia (RBA) in Sydney, Australia, 01 September 2015. The RBA announced it will keep interest rates on hold at an historic low of two percent. The Australian bond market has been weighed down by a spike in oil prices, nervousness about China's pace of growth and fears of a September US rate rise. EPA

SYDNEY: Australia’s central bank on Tuesday marked a full year without changing interest rates, and many economists suspect rates could stay at record lows of 1.5% for yet another year as policymakers look to put the economy on a sustainable footing.

The Reserve Bank of Australia (RBA) stepped up its rhetoric against a rising local dollar, saying the higher exchange rate will further compress consumer prices, weighing on the outlook for growth and employment.

The Australian dollar has jumped about 8% since June to a two-year peak, largely driven by a battered greenback. It was last up 0.3% at US$0.8025.

In response, the RBA inserted a new paragraph in its August policy statement, saying, ”an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.” 

It last cut official cash rates in August 2016 to head off the danger of deflation.

But inflation has still remained below the RBA’s target band of 2%-3%, data out last week showed.

“Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” the RBA said in its statement.

The central bank said it still expected a gradual pick-up in inflation and forecast the A$1.7 trillion economy to grow at around 3% over the next couple of years.

Keeping consumer prices lukewarm is record-low wages growth at 1.9% - less than half the rate workers enjoyed a decade ago. The central bank is worried that incomes are rising at a much slower pace than the increase in household debt.

“The low level of interest rates is continuing to support the Australian economy,” the RBA said.

“One source of uncertainty for the domestic economy is the outlook for consumption. Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending.” 

A majority of the 42 economists polled by Reuters forecast a steady rate outlook over a one-year horizon, with only 9 expecting a rate hike. - Reuters
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