Reserve Bank of Australia keeps key rate at 2.5 percent in almost carbon copy statement

The Reserve Bank of Australia kept its benchmark cash rate unchanged at 2.5 percent, as expected, in a statement almost unchanged from a month ago, reiterating economic growth has been below trend and inflation will likely remain contained.

Governor Glenn Stevens also reiterated that the Australian dollar is “uncomfortably high” and that a weaker currency is probably needed to achieve balanced growth in the economy. The Australian dollar was last at 90.82 US cents, from 90.87 cents immediately before the statement and down from more than US$1.10 in late July.

“In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher,” Stevens said. “This is likely to persist in the near term, as the economy adjusts to lower levels of mining investment.”

“Further ahead, private demand outside the mining sector is expected to increase at a faster pace, though considerable uncertainty surrounds this outlook,” Stevens said. “There has been an improvement in indicators of household and business sentiment recently, but it is still unclear how persistent this will be. Public spending is forecast to be quite weak.”

Traders see 19 basis points of rate increases by Australia’s central bank in the next 12 months while in New Zealand, the Reserve Bank is expected to hike its official cash rate by about 100 basis points, based on the Overnight Interest Swap curve. The likely rates differential is one reason the kiwi dollar is around 90 Australian cents, a five-year high.

Stevens said globally data shows growth is “running a bit below average this year, with reasonable prospects of a pick-up next year.”

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

(BusinessDesk)