Australia: RBA holds rate in June, restates period of interest rate stability
July 1, 2014
The Reserve Bank of Australia (RBA) left the cash rate unchanged at the historic low of 2.50% at its 1 July meeting. The decision was broadly expected by the market and constituted the ninth 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 was virtually in line with the previous month. 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, “continued accommodative monetary policy should provide support to demand and help growth to strengthen over time.” That said, it maintained its previous perception of the structural change that is taking place in the economy with investment in the resource sector declining and unemployment at record highs. The Bank sees economic growth remaining a little below trend for the year ahead. In line with this, the Bank restated that investment intentions in the business sector “remain tentative”. As in the previous statement, the RBA added that public spending is, “scheduled to be subdued,” which is still consistent with the government’s fiscal stance.
The Bank said that credit growth picked up slightly, given the low level of interest rates. The Bank referred again to the situation in the housing market; it restated that despite the increase in prices over the past year, “there have been some signs of a moderation in the pace of increase recently.” The monetary authority continues to see the Australian dollar as, “high by historical standards.” 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.