Australia: RBA holds rate in May, restates period of stability in interest rates
May 6, 2014
The Reserve Bank of Australia (RBA) left the cash rate unchanged at the historic low of 2.50% at its 9 May meeting. The decision was broadly expected by the market and marked the seventh consecutive meeting in which the reference rate was unchanged. The RBA decided to keep the rate at its previous level given that the monetary policy stance is consistent with the current performance of the economy.
The accompanying statement was virtually unchanged over the previous month. Regarding the global economy, the RBA acknowledged that, "financial conditions overall remain very accommodative," and added that there are, “reasonable prospects of a pick-up this year.” With respect to the domestic economy, the RBA maintained its April perception of the structural change that is taking place in the economy with investment in the traditional growth-driving resource sector declining and unemployment at record highs. However it added 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.”
The RBA said that credit growth is slowly picking up, which was a slightly more optimistic assessment of local financial conditions over last month's statement. The Bank restated that the Australian economy is expected to strengthen in the coming quarters, though it said that, “it will probably be some time yet before unemployment declines consistently.” With monetary policy remaining accommodative and a weaker Australian dollar, 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.
FocusEconomics Consensus Forecast panelists expect the cash rate to end 2014 at 2.53% and to rise to 2.98% by the end of 2015.