Australia: RBA leaves cash rate unchanged again in April
April 7, 2015
The Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 2.25% for the second consecutive month at its 7 April meeting. The decision was in line with market expectations. The Bank had cut its cash rate for the first time in 20 months at its February meeting.
In its accompanying statement, the Bank stated that the global economy is continuing to grow at a moderate pace. While growth in the U.S. remains strong, growth in China is weak and is projected to continue to be sluggish this year. Regarding price developments, the RBA pointed out that the decline in commodity prices is a reflection of subdued global demand. However, the Bank also commented that, “much lower levels of energy prices will act to strengthen global output and temporarily to lower CPI inflation rates.”
In regard to the domestic economy, the RBA mentioned that the Australian economy is expected to continue growing below trend, dragged down by weak business capital expenditure. As a result, unemployment is expected to peak at a higher level than previously estimated. The Bank also noted that, “the Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems likely, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.”
Finally, the Bank considered that, having eased monetary policy at February’s meeting, “it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.”
Author: Cecilia Simkievich, Economist