RBA Interest Rate remains unchanged at 2.5 per cent As widely - TopicsExpress



          

RBA Interest Rate remains unchanged at 2.5 per cent As widely expected for the second meeting of the year, the RBA has decided yet again to leave the cash rate unchanged at 2.5 per cent. This is the seventh month in a row that the RBA has elected to leave the cash rate fixed, with the mining investment on the slump, inflation and unemployment on the rise and the Australian dollar relatively high. Governor Glenn Stevens has redeclared the indication that the Australian dollar is still ‘uncomfortably high.’ Lower interest rates and lower exchange rate is anticipated to encourage balanced growth in the economy. The board’s assertion of rising local house prices, soaring home building approvals and improved corporate profitability, among the fears of a war between Russia and Ukraine, were evidence that these areas will benefit from the low interest rates. HSBC Australia chief economist Paul Bloxham claims that Mr Stevens’ statement forecasted RBA’s decision to keep the cash rate steady for some time. “There are no hints here that the RBA is considering cutting interest rates further and we think the RBA’s easing phase is done,” he said. Recent data has shown continued rise in home prices and foreshadows a “solid expansion” in housing construction this year. The trend of rising interest in home building has extended, recording a 6.8 per cent jump between December and January backed by strong growth in capital city prices especially in Victoria and New South Wales. Tom Kennedy, Economist at JP Morgan said, “It is clear that activity in the building sector is trending higher, with this momentum to persist in 2014,” Please find the statement from RBA Governor Glenn Stevens reproduced below: Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year. The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one. Japan has recorded a significant pick-up in growth, while Chinas growth remains in line with policymakers objectives. Commodity prices have declined from their peaks but in historical terms remain high. Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets are well placed to provide adequate funding, though for some emerging market countries conditions are considerably more challenging than they were a year ago. In Australia, recent information suggests slightly firmer consumer demand and foreshadows a solid expansion in housing construction. Some indicators of business conditions and confidence have shown improvement and exports are rising. At the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative. Public spending is scheduled to be subdued. The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably. If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate. Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth remains low overall but is picking up gradually for households. Dwelling prices have increased significantly over the past year. The decline in the exchange rate seen to date will assist in achieving balanced growth in the economy, though the exchange rate remains high by historical standards. Looking ahead, the Bank expects unemployment to rise further before it peaks. Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate. Inflation is expected to be consistent with the 2–3 per cent target over the next two years. In the Boards judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.
Posted on: Fri, 07 Mar 2014 02:26:38 +0000

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