Australia: RBA maintains cash rate in November
November 3, 2015
The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.0% at its 3 November Board Meeting. The decision was in line with market expectations. The cash rate has been kept at its current level since the Bank’s decision to cut the rate to the current record low on 5 May.
The Bank’s accompanying statement was largely unchanged from last month and maintained that the global economy is growing at a modest pace, thanks in part to a slowdown in Asian economies. Lower prices for key commodities resulting from oversupply in global markets have taken a toll on Australia’s terms of trade. Financially, policy conditions across major economies remain accommodative, however some emerging markets are facing increased borrowing costs. Lastly, instability in global financial markets has moderated for the time being.
The Australian economy shows signs of a continued steady expansion, albeit at a slow pace. Output is still growing at levels below the long-run average, however, business surveys have indicated a gradual pick up in conditions and the labor market has also shown modest gains. The RBA also specified that inflation at home had been revised downward slightly, although the Bank still sees long run inflation as being within the Bank’s target range. The Australian dollar is still adjusting in response to the lower prices for key Australian exports.
Such economic conditions call for a continued expansionary policy stance. The RBA stated that relatively-low interest rates have bolstered lending across sectors, particularly in the housing market. The RBA has previously cautioned that the domestic housing market may be overheated, however in the most recent statement the Bank stated that it believes lending growth to owner-occupiers has picked up, whereas lending to property investors has fallen. Such a transition implies a more stable housing market. House prices are continuing to rise, however the pace of growth has moderated as regulatory measures designed to contain risk stemming from the housing market are implemented.
The RBA further elaborated that, “the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate at this meeting. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.” The next Board Meeting is scheduled for 1 December.
Author: Robert Hill, Economist