Australia: RBA maintains cash rate in June
June 2, 2015
The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.0% at its 2 June policy meeting. The decision was in line with market expectations after the Bank decided to cut the rate to its current record low level on 5 May.
In its accompanying statement, the Bank stated that the global economy is expanding at a moderate pace, however key commodity prices have fallen relative to a year ago. This appears to be the result of increased global supply of such commodities, including increased supply from Australia. The RBA also stated that global credit availability remains accommodative, as major Central Banks continue their policy easing.
Meanwhile, Australian data suggest that the country continues to grow, albeit at a pace below its long-run average. Strengths include increases in exports as well as in household spending, however capital expenditure represents a weakness, particularly in the mining sector. Furthermore, public spending is expected to remain at lower levels, thus hindering growth. The Bank noted that the AUD has weakened against the USD, yet further depreciations against the USD and other currencies are likely given subdued commodity prices. The Bank commented that, “the economy is likely to be operating with a degree of spare capacity for some time yet. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.”
Currently, low rates are supporting borrowing and spending, and steady increases in lending activity have been recorded over recent months. The Bank noted that it was monitoring risks stemming from an overheated housing market, stating that it is, “working with other regulators to assess and contain risks that may arise from the housing market.” The next policy meeting is on 7 July.
Author: Robert Hill, Economist