Australia's Reserve Bank Keeps Rate Cuts In The Tank To Fight The Country's High Dollar

Australia’s central bank kept the country’s cash rate on hold today, with further cuts held in reserve as a measure to fight the stubbornly-high dollar and encourage growth, economists said.

As expected, the reserve bank today decided to keep the cash rate at a record low of 2.75% at its June meeting.

UBS Australia chief economist Scott Haslem said while today’s call was to hold the rate, further cuts were likely.

“They [the RBA] are pausing and taking a bit of time but they still clearly have an easing bias,” Haslem told Business Insider this afternoon.

“We think you will see them trim the cash rate one more time in the next few months.”

HSBC Australia’s chief economist Paul Bloxham said today’s decision showed the reserve bank was still worried about the relatively high value of the Australian dollar, “considering the decline in export prices that has taken place over the past year-and-a-half.”

“We see the current easing bias as the RBA noting that they still have ammunition left to fight the currency war. That is, they could cut rates further if the AUD remains stubbornly high,” he said in a note out after the decision.

If Australia’s dollar remains “well off its peaks,” as HSBC expects it to, the reserve bank may not need to cut rates further to support economic growth, Bloxham explained.

When it announced the decision, the reserve bank said the cuts it had already made over the past 18 months were helping the economy.

“At today’s meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target,” said RBA governor Glen Stevens in his statement.

“The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand,” he said.

Read the RBA’s full statement here.

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