Australia Monetary Policy


Australia: RBA continues to hold rate at record low

October 7, 2014

The Reserve Bank of Australia (RBA) left the cash rate unchanged at the record low of 2.50% at its 7 October meeting. The decision was expected by the market and marked the 13th consecutive meeting in which the reference rate was unchanged. The RBA decided to keep the rate at its previous level because the accommodative monetary policy stance is consistent with the economy’s current growth situation. As in its previous statements, the Bank also restated that, “the most prudent course is likely to be a period of stability in interest rates.”

The Bank’s accompanying statement mirrored the previous month’s. Concerning the global economy, the RBA acknowledged that, "financial conditions overall remain very accommodative,” and that, “long-term interest rates and risk spreads remain very low.” In regard to the domestic economy, the RBA maintained that moderate economic growth is occurring, however, “resources sector investment spending is starting to decline significantly.” Accordingly, the Bank expects that economic growth will be slightly below trend for the next several quarters and that Australia’s high unemployment rate will persist. As in the previous statement, the RBA added that public spending is “scheduled to be subdued”, which is consistent with the government’s fiscal position.

The Bank said that credit growth has picked up slightly, particularly in “lending to investors in housing assets”. The RBA added that the exchange rate remains relatively high compared with its historical value and that this has resulted in the exchange rate, “offering less assistance than would normally be expected in achieving balanced growth in the economy." The RBA maintained its expectations regarding inflation, which are projected to be consistent with its 2.0% to 3.0% target over the next two years.

FocusEconomics Consensus Forecast panelists expect the cash rate to end 2014 at 2.51% and to rise to 2.95% by the end of 2015.

Author: Angela Bouzanis, Senior Economist

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Australia Monetary Policy Chart

Australia Monetary Policy October 2014 0

Note: RBA Cash Rate in %.
Source: Reserve Bank of Australia (RBA).

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