SYDNEY: Australia’s central bank on Tuesday held interest rates at a record low of 2.0 percent as it kept the possibility of further easing on the table and dropped calls for a weaker exchange rate.
The Reserve Bank of Australia (RBA) said it would continue to monitor data over the next few months, adding that leaving the cash rate unchanged “was appropriate” for this month.
“Further information on economic and financial conditions to be received over the period ahead will inform the board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target,” RBA Governor Glenn Stevens said in a statement.
The central bank has slashed rates by 250 basis points since November 2011, with the latest 25 basis points cuts coming in February and May, as the economy adjusts to a shift away from an unprecedented boom in mining investment.
The boom has helped Australia stave off a recession for more than two decades but economic data has been soft over the past year as non-resources sectors struggle to fill the gap left by mining investment.
The Australian dollar jumped about a third of a US cent to 73.43 US cents after the statement was released, with analysts pointing to the Reserve Bank’s lack of a call for a weaker currency as a trigger.
Commodity slump hits currency
While Stevens had said in previous statements following the RBA’s monthly board meetings that the currency’s depreciation “seems both likely and necessary,” the August wording only noted that the “Australian dollar is adjusting to the significant declines in key commodity prices.”
“A lot of [the statement]was very similar in that they are not ruling anything in or out in terms of interest rates,” Westpac senior currency strategist Sean Callow told Agence France-Presse.
“But certainly what jumped out at us was a change in language on the Aussie . . . to a very muted view.”
The local currency has been hit by plunging commodity prices and fell to a six-year low of 72.35 US cents on July 31. Australia is a resources-dependent economy, with iron ore its largest export.
Ahead of the release on Thursday of unemployment data—the rate has hovered around a decade-high 6.0 percent over the past year—Stevens sounded a cautiously optimistic note on the labor market.
“While the rate of [economic]growth has been somewhat below longer-term averages, it has been associated with somewhat stronger growth of employment and a steady rate of unemployment over the past year,” Stevens said.
Barclays’ chief economist for Australia Kieran Davies added that the RBA could lower its forecast peak in unemployment in its Statement of Monetary Policy, due Friday.
“[They could] acknowledge that unemployment’s unlikely to hit the 6.5 percent that they were predicting earlier,” Davies said.
The quarterly statement sets out the RBA’s view on the health of the economy and in the previous May report the central bank lowered its economic growth forecast for the year to June 2015 to 2.0 percent from 2.25 percent.