Australian interest rates hold, easing bias remains

The RBA has elected to keep rate on hold as expected. Find the statement below, which the shows again that the easing bias remains in place.

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 3.0 per cent.

Global growth is forecast to be a little below average for a time, but the downside risks appear to have lessened over recent months. The United States is experiencing a moderate expansion and financial strains in Europe are considerably reduced compared with the situation through much of last year. Growth in China has stabilised at a fairly robust pace. Around Asia generally, growth was dampened by the earlier slowing in China and the weakness in Europe, but again there are signs of stabilisation. Commodity prices are little changed recently, at reasonably high levels.

Sentiment in financial markets is much improved compared with the middle of last year. Risk spreads have narrowed and funding conditions for financial institutions are more favourable. Long-term interest rates faced by highly rated sovereigns, including Australia, remain at exceptionally low levels. Borrowing conditions for large corporations are very attractive. Share prices have risen substantially from their low points. However, the task of putting private and public finances on sustainable paths in several major countries is far from complete. Accordingly, as seen most recently in Europe, financial markets remain vulnerable to occasional setbacks.

In Australia, most indicators available for this meeting suggest that growth was close to trend over 2012, led by very large increases in capital spending in the resources sector, while some other sectors experienced weaker conditions. Looking ahead, the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen.

Present indications are that moderate growth in private consumption spending is occurring, though a return to the very strong growth of some years ago is unlikely. The near-term outlook for non-residential building investment, and investment generally outside the resources sector, is relatively subdued, though recent data suggest some prospect of a modest increase during next financial year. Dwelling investment appears to be slowly increasing, with higher dwelling prices and rental yields. Exports of natural resources have been strengthening, though recent bad weather is affecting some shipments at present. Public spending, in contrast, is forecast to be constrained.

Inflation is consistent with the medium-term target, with both headline CPI and underlying measures at around 2¼ per cent on the latest reading. Looking ahead, with the labour market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labour costs, as was confirmed in the most recent data. Moreover, businesses are focusing on lifting efficiency under conditions of moderate demand growth. These trends should help to keep inflation low, even as the effects on prices of the earlier exchange rate appreciation wane. The Bank’s assessment remains that inflation will be consistent with the target over the next one to two years.

During 2012, there was a significant easing in monetary policy. Though the full impact of this will still take more time to become apparent, there are signs that the easier conditions are having some of the expected effects. On the other hand, the exchange rate remains higher than might have been expected, given the observed decline in export prices, and the demand for credit is low, as some households and firms continue to seek lower debt levels.

The Board’s view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate. The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand. At today’s meeting, taking into account the flow of recent information and noting that there had been a substantial easing of policy as a result of previous decisions, the Board judged that it was prudent to leave the cash rate unchanged. 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 over time.

David Llewellyn-Smith
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Comments

  1. No surprises there, though I suspect that there will be further to come. Depends what happens in China, and how long Europe can keep kicking that can down the road. Gotta start hurting the toes of the kickers soon, surely.

  2. “Present indications are that moderate growth in private consumption spending is occurring,”

    Yes we really need higher consumption andmore debt. More debt, less savings, more asset sales to foreigners, is the answer!

    “Dwelling investment appears to be slowly increasing, with higher dwelling prices and rental yields.”
    Fanbloodytastic! We’re all gonna get rich! Rich I tell ye!

    “The Board’s view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate. ”

    Hm no need to worry about the massive chronic CAD. We can just keep borrowing and selling off the nation.

    What bleeding insanity wanders the corridors of power and academia these days. Is it some sort of 100% contagious ‘stupid’ or ‘don’t give a RA’ virus?

    It all reminds me of that idiot Kudlow on CNBC right before the GFC hit talking about the ‘Goldilocks economy’ Not too hot! Not too cold! Just right!
    Strewth! You’d think we were talking about some fairy tale rather than a real economy!

    Apologies to everyone. Every now and again the stupidity and insanity of it all just gets to me!

  3. MichealMEMBER

    Looking ahead, the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen.

    Why will there be more room for other areas of demand?
    Because resource investment has taken up all the capital?
    Because resource investment has taken up all the labour?

    The high dollar and over-indebtedness has more to do with lack of demand in other areas or am I missing something.

    • I said long time ago something about an ad of one of those property seminars “be a millionare in three months” that showed up here in macrobusiness of all places.
      MB should filter those out. I am sure it is possible. Leave the ones about Fx trading and other that are legitimate companies but those get rich quick ads look like spam and devalue the excellent content of the site.

    • The Patrician

      I was trying to work out the relevance of the picture of family living in their car 🙂