Australia: RBA holds rate in June, restates period of stability in interest rates
June 3, 2014
The Reserve Bank of Australia (RBA) left the cash rate unchanged at the historic low of 2.50% at its 3 June meeting. The decision was broadly expected by the market and constituted the eight 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 continued to remark 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 the previous month’s one. Regarding the global economy, the RBA acknowledged that, "financial conditions overall remain very accommodative," and remarked that, “volatility in many financial prices is currently unusually low.” With respect to the domestic economy, the RBA maintained its April and May perception of the structural change that is taking place in the economy with investment in the resource sector, the main driver of growth in the last decade, declining and unemployment at record highs. In line with this perception, the Bank restated that business conditions have improved with respect to last year, although 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 consistent with the government’s fiscal stance.
The RBA said that credit growth picked up slightly in May, which was a slightly more optimistic assessment of local financial conditions over last month’s statement. The Bank also referred to the situation in the housing market; it said 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 somewhat higher than expected, but still consistent with the RBA’s 2.0% to 3.0% target over the next two years.