Australia: RBA leaves cash rate unchanged in March
March 3, 2015
The Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 2.25% at its 3 March meeting. The decision contrasted market expectations of a 25-percentage-point reduction. The Bank 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, low energy prices are expected to increase households’ income and strengthen global growth going forward.
In regard to the domestic economy, the RBA mentioned that the Australian economy is expected to continue growing below trend, as it will be dragged down primarily by weak growth in domestic demand. As a result, unemployment is expected to peak at a higher level than estimated earlier. The Bank commented that, although the Australian dollar has been uninterruptedly depreciating against the U.S. dollar over the course of the past eight months, “it remains above most estimates of its fundamental value, 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 further assess the case for such action at forthcoming meetings.”
Author: Cecilia Simkievich, Economist