RBA Leaves Cash Rate At 2.5% - 'Lower Dollar Would Help Rebalancing'

Reserve BankGetty / Brendon Thorne

Australia’s central bank the RBA has left the target cash rate on hold at 2.5% as everyone expected.

In the accompanying statement, the bank said monetary policy remained “appropriate” but still thinks a further fall in the dollar could help the economy.

The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values. The full effects of these decisions are still coming through, and will be for a while yet. The pace of borrowing has remained relatively subdued to date, though recently there have been signs of increased demand for finance by households. There is also continuing evidence of a shift in savers’ behaviour in response to declining returns on low-risk assets.

The Australian dollar rose recently, but is still about 10 per cent below its level in April. A lower level of the currency than seen at present would assist in rebalancing growth in the economy.

The bank also noted some of the green shoots on consumer and business confidence that started to emerge in the run-up to the federal election and since, but says it’s wait-and-see time:

In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher. There has been an improvement in indicators of household and business sentiment recently, though it is too soon to judge how persistent this will be. Inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the lower exchange rate.

Anyone concerned about housing markets overheating – and we haven’t been – can be reassured that there’s not going to be an even cheaper supply of credit.

The Aussie dollar rose about .4 of a cent against the USD on the announcement.

The full statement’s here.

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