Australia Monetary Policy


RBA keeps rate unchanged in December

The Reserve Bank of Australia (RBA) left the cash rate unchanged at the historic low of 2.50% at its 3 December meeting. The decision was broadly expected by the market.

The RBA decided to keep the rate at its previous level given that the monetary policy stance is consistent with the current economic situation. As a result, the content of its media release as well as the language used was almost the same as in the November statement. The RBA maintained its assessment of the global economic situation, stating that growth is below average and that it is not expected to pick up until next year. For the Australian economy, the RBA pointed out that GDP is performing below trend and that unemployment remains high, which was attributed to the decline in mining investments. The RBA restated that inflation remains subdued in most countries and that this would likely minimize the risk of imported price increases. As a result, inflation will remain within the medium-term target of 2.0%-3.0%, "over the next one to two years."

The RBA still believes that the Australian Dollar (AUD), "while below its level earlier in the year, is still uncomfortably high." It went on to say that a balanced recovery for the Australian economy would have to be based, to a significant extent, on a lower AUD. The AUD closed November at 0.91 USD (October: 0.95 USD per AUD). Panelists polled by FocusEconomics expect the exchange rate to end 2013 at 0.92 USD per AUD. For 2014, the panel sees the exchange rate closing the year at 0.89 USD per AUD.

FocusEconomics Consensus Forecast panelists expect the cash rate to end 2013 at 2.50%, and to rise to 2.69% by the end of 2014.


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