Reserve Bank of Australia (RBA) deputy governor Guy Debelle just poured a bucket of water over growing expectations that the bank is considering following its peers at the US Federal Reserve and Bank of Canada in delivering a near-term hike in official interest rates.
In a speech delivered in Adelaide, Debelle said that “the fact that other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase”, adding that policy rates in both the US and Canada “still remain below that in Australia”.
“Ultimately, in Australia as is the case elsewhere, policy rates are set at the level assessed to be appropriate to achieve the domestic policy objectives,” Debelle said.
“While global influences, including monetary policy settings in other economies, have a significant impact on that assessment, they are, in the end, only one of a number of considerations to be taken into account.”
That is, domestic interest rates are set to achieve the RBA’s policy objectives, not to follow what other central bank’s do around the world.
Debelle also said that the discussion on Australia’s neutral policy level in the bank’s July monetary policy meeting was not a signal that it was considering a series of rate hikes in the years ahead.
“No significance should be read into the fact the neutral rate was discussed at this particular meeting,” he said. “Most meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate.”
Debelle also touched upon the Australian dollar, noting that “while an easier monetary policy elsewhere in the world should lead to faster growth in the world economy, which is good for the Australian economy, an appreciating exchange rate works against this”.
With both global economic conditions and the Australian dollar strengthening at present, that suggests the RBA is becoming concerned that the Australian economy won’t see the full benefit of healthier conditions abroad.
Indeed, answering questions after his speech, Debelle said the Aussie’s recent strength “is” complicating Australia’s economic transition, adding that it’s “not welcome”.
Previously the RBA stated that a stronger currency “would” complicate this adjustment.
The remarks had an instant impact with the Australian dollar falling over half a percent while bank bill futures and Australian government bonds are rallying.
You can read the full speech here.