RBA leaves interest rates unchanged
In a decision that would have surprised many, the Reserve Bank of Australia decided to leave the cash rate unchanged at 3.75% after three consecutive monthly rises. While acknowledging the strong outlook for the Australian economy, the RBA decided to wait a little longer to judge the impact of recent rate rises before raising rates again.
RBA Governor, Glenn Stevens, said expansion is likely to be modest in the major countries, due to the continuing legacy of the financial crisis, resulting in ongoing excess capacity.
“In Asia, where financial sectors are not impaired, recovery has been much quicker to date, though the Chinese authorities are now seeking to reduce the degree of stimulus to their economy,” Mr Stevens said.
”Global financial markets are functioning much better than they were a year ago. Credit conditions nonetheless remain difficult in the major countries as banks continue to face loan losses associated with the period of economic weakness.”
At home, Mr Stevens pointed to the fact that stimulus measures have faded, while also noting the support strong labour market outcomes and a recovery in net worth has had on household finances.
”Public infrastructure spending is now boosting demand, as is an upturn in housing construction,” Mr Stevens said.
”Investment in the resources sector is strong. The rate of unemployment appears to have peaked at a much lower level than earlier expected.”
Mr Stevens added that inflation had declined, as expected, and credit for housing has been expanding at a solid pace. However, business credit has continued to fall.
“Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point,” he said.
”Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.”
The board said it expects the monetary policy to be adjusted further, over time, in order to ensure that inflation remains consistent with the target over the medium term.
Leave a Reply