Australia Monetary Policy

Australia

Australia: RBA holds rate in August, restates period of stability in interest rates

August 5, 2014

The Reserve Bank of Australia (RBA) left the cash rate unchanged at the historic low of 2.50% at its 5 August meeting. The decision was broadly expected by the market and constituted the 10th 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 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 virtually mirrored the previous month’s. Regarding the global economy, the RBA continued to see that, "financial conditions overall remain very accommodative.” With respect to the domestic economy, the RBA acknowledged that economic growth picked up around the turn of the year, but mainly was driven by the strong performance of the resources sector’s exports. However, the RBA said that, “resources sector investment spending is starting to decline significantly,” which supports the idea that the country’s economic growth model might be moving toward a less resource-dependent scheme. Accordingly, given the structural change that the economy is experiencing, the RBA sees “some time” before unemployment declines consistently. Overall, the Bank sees economic growth, “to be a little below trend over the year ahead.”



The Bank said that credit growth picked up slightly, and is flowing to businesses. The Bank referred again to the situation in the housing market; it restated that despite the increase in prices over the past year, “the increase in dwelling prices has been slower this year than last year, though prices continue to rise.” The monetary authority continues to see the Australian dollar as, “high by historical standards,” which is limiting the potential of the exchange rate to support the external sector and thus to achieve 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 3.01% by the end of 2015.


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Australia Monetary Policy August 2014

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


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