Australia Monetary Policy


Australia: RBA holds rate at record low in September

September 3, 2014

The Reserve Bank of Australia (RBA) left the cash rate unchanged at the record low of 2.50% at its 2 September meeting. The decision was broadly expected by the market and marked the 11th 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 and restated as in its previous statements that, “the most prudent course is likely to be a period of stability in interest rates.”

The Bank’s accompanying statement was virtually the same as in the previous month. 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 below trend for the upcoming year 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 and that it is flowing to businesses. The RBA added that the exchange rate remains relatively high compared with estimates of its fundamental value. The Bank stated 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 2.53% and to rise to 3.00% by the end of 2015.

Author: Angela Bouzanis, Senior Economist

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Australia Monetary Policy Chart

Australia Monetary Policy September 2014

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

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