The Reserve Bank of Australia keeps official cash rate on hold for the 16th straight month in a row.
According to commentators at The Austalian “This decision by the RBA represents the longest period of interest rate stability for almost 20 years and is designed to support economic growth as slumping global commodity prices undermine confidence in Australia’s economy”.
Glenn Stevens, Governor: Monetary Policy Decision mentioned that “Growth in the global economy is continuing at a moderate pace. China’s growth has generally been in line with policymakers’ objectives. While weakening property markets present a challenge in the near term, economic policies have been responding in a way that should support growth. The US economy continues to strengthen, but the euro area and Japan have both seen weakness recently. Some key commodity prices have declined significantly in recent months, reflecting somewhat softer demand and, more importantly, increased supply”.
The stubbornly strong dollar will continue to frustrate the RBA, analysts at Perpetual argue. The RBA has been fighting a loosing battle with the high exchange rate for the past year.
“The exchange rate remains high by historical standards, particularly given the declines in key commodity prices,” the statement from Governor Stevens said. “It is offering less assistance than it might in achieving balanced growth in the economy.”
“The high Aussie dollar is disrupting Australia’s great balancing act,” said HSBC’s Chief Economist, Paul Bloxham.
“But there is little that we think the RBA is likely to do about it,” said Mr Bloxham. “Cutting rates further would risk overinflating the housing market and direct intervention by the RBA is highly unlikely as it would be seen as likely to be largely ineffective.”
Westpac and HSBC analysts expect rates to remain at 2.5 per cent until at least the first quarter of 2015.