Cash rate decision made

 

dollar, coins, moneyThe Reserve Bank of Australia has kept the cash rate at 2.5 per cent as it waits for recent rate reductions work their way through the economy.

The decision was expected, with all 14 economists surveyed by AAP last week forecasting no change at the September board meeting.

The RBA last cut the cash rate in August, by a quarter of a percentage point, and before that in May by the same amount.

In a statement accompanying the decision, RBA governor Glenn Stevens said growth was still below trend and would stay that way for a while as the economy moved away from one driven by the mining sector.

“Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year,” he said.

“Commodity prices have declined from their peaks, but generally remain at high levels by historical standards. Inflation in most countries remains well contained.”

Stevens noted that the Australian dollar was still high by historical levels despite falling 15 per cent since April, currently around 90 US cents.

The currency’s average level since it floated in December 1983 is 75.5 US cents.

“It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy,” he said.

“The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target.”

HSBC chief economist, Paul Bloxham, said the Reserve Bank appeared to be in a `wait and see’ mode in what was an unsurprising statement.

“They seem quite comfortable, probably more comfortable than we’ve seen in previous statements,” Bloxham said.

“They noted that interest rates are low and they’re already lifting the interest rate-sensitive sectors of the economy.

“They still seem a bit concerned that the Aussie dollar is high but they’re hinting that they expect it may come down a little further.

“They haven’t really given much guidance, if any, about what future moves are likely.”

JP Morgan economist Ben Jarman said the wording of the RBA’s statement had barely changed between August and September.

But he said the central bank had indicated it was waiting to see the effects of rate cuts in May and August flow through to the economy.

“They’re just reminding us that policy easing does work with a lag and we haven’t yet seen the impact of what the RBA did over the last couple of months,” he said.

However, Jarman said the RBA was still leaning towards cutting the cash rate again in the next few months.

“We still think the way they describe the balance of risks around growth that they still have an easing bias.”

AAP

You have 7 articles remaining. Unlock 15 free articles a month, it’s free.