Australia: RBA maintains policy rate in April
April 5, 2016
The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.00% at its 5 April Board Meeting. The decision was in line with market expectations. The cash rate has been kept at this level since May 2015 when the Bank decided to cut the rate to the current record low. In this month’s accompanying statement, the RBA restated that the global economy is growing, albeit slower than expected, and that conditions have become more difficult for developing economies. It also noted that China has continued to decelerate. Commodity prices have stabilized and recovered somewhat in the first quarter of 2016, although they remain at historical lows and have weakened Australis’s terms of trade. Financial market volatility has eased in recent months, yet uncertainty persists as monetary policy is divergent across major economies.
The Australian economy appears to be readjusting to the collapse of investment in the mining sector With GDP growth picking up in in 2015. The labor market has also shown signs of resilience. In the monetary sector, inflation remains modest thanks to excess capacity in the economy as well as low energy prices. Inflation is subdued across the world, which suggests that it will continue to be mild in Australia. The Australian dollar underwent a modest recovery in the first quarter of the year on the back of a pickup in commodities prices. Currency devaluations in other parts of the world have also helped to boost the currency. The RBA noted that an appreciation of the Australian dollar may compromise the nascent recovery the country is currently undergoing.
The current low-interest-rate environment has helped boost demand. Prudential regulations have helped to contain risks associated with an overheated housing market. In previous statements, the RBA has warned of an overheated housing market in some regions, however, in its April statement, it left out this warning indicating that risks to the housing market have subsided substantially. The RBA stated that, “given these conditions, it is appropriate for monetary policy to be accommodative,” and further noted that there were, “reasonable prospects for continued growth in the economy, with inflation close to target.” The next policy meeting is scheduled for 3 May.
Author: Robert Hill, Economist