Australia: RBA maintains cash rate in September
August 4, 2015
The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.0% at its 1 September policy meeting. The decision was in line with market expectations following 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. The RBA noted that the global economy is continuing to expand at a modest pace, albeit with some setbacks in China and East Asia. It also restated that oversupply has put downward pressure on commodity prices relative to last year and that the oversupply is partially the result of domestic production. In spite of the increased supply, Australia’s terms of trade are deteriorating. The RBA stated that although global and domestic equity markets have witnessed periods of volatility recently, they have been relatively stable in general.
On the home front, the Australian economy is growing steadily albeit below capacity, and it is likely to continue to do so for some time, thereby mitigating inflationary pressure from a weaker dollar. Employment growth has been solid, and unemployment remains stable. Regarding the Australian dollar, the Bank stated that it was undergoing adjustment in light of lower commodity prices.
The RBA maintained that it is necessary for policy to be accommodative right now, as low interest rates are acting to support lending activity, thereby stimulating the economy. The Bank reiterated its concern over elevated housing prices in Sydney, however, the Bank noted that it was working with regulators to contain any risks associated with the housing market while other property markets have been boosted by low long-term borrowing rates. The next Reserve Bank Board Meeting is scheduled for 6 October.
Author: Robert Hill, Economist