Australia: RBA maintains policy rate in March
March 1, 2016
The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.00% at its 1 March 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 2015. In this month’s accompanying statement, the RBA reiterated that, globally, growth is moderate, with China’s economy continuing to show signs of deceleration. Commodity prices have shown considerable declines over the past year, resulting from both oversupply and decreased demand. This has caused Australia’s terms of trade to weaken considerably. In terms of borrowing costs, the world is still very accommodative for large corporate and sovereign borrowers. This is due in part for a reduced appetite for risk, which has caused borrowing costs for riskier borrowers to increase.
In Australia, the non-mining sector strengthened in 2015, although there are certainly areas in which the slowdown in coal and iron ore demand can be seen in labor markets and the real economy. Lending to Australian business has also picked up thanks to accommodative lending conditions set by the RBA.
In the monetary sector, inflation remains modest thanks to excess capacity in the economy, as well as low energy prices. The current low interest rate environment has helped boost demand and prudential regulations have helped to contain risks associated with an overheated housing market. The housing markets are still attracting investment; however, they are more balanced with increased owner-occupiers. Regarding the pace of growth in the housing market, the Bank stated that “growth in dwelling prices has moderated in Melbourne and Sydney and has remained mostly subdued in other cities.”
The RBA stated that “there were reasonable prospects for continued growth in the economy, with inflation close to target.” Therefore, the Bank deemed that the current policy stances were appropriate. The next policy meeting is scheduled for 5 April.
Author: Robert Hill, Economist