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Prospects of economic improvemnt prompt RBA to hold rates steady

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 1, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - The Reserve Bank of Australia today left its cash rate unchanged at 2 per cent as it feels prospects for the economy has improved recently. The RBA’s decision is in line with broad market expectations.

    The central bank stated that expansion in the economy continued at a moderate pace though the trade sector was hurt by a sharp drop in commodity prices. Also, the labor market has remained resilient, suggesting improvement in employment. The unemployment rate has stabilized at a little under 6 per cent. The plunge in mining sector could not hamper overall growth. The economy saw a significant improvement in consumer confidence. These factors sent the message across that there is no immediate need to add further stimulus.

    RBA governor Glenn Stevens said “The board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate,”

    Business lending recorded the maximum gain in six-and-a-half years

    Credit data released yesterday showed lending to businesses moved up by 6.6 per cent in October from a year earlier prompting the central bank to conclude that that the economy was performing well despite drop in mining investment.

    Also, net exports also added 1.5 per cent to overall growth in the third quarter. This led the economists to raise their forecast for the GDP data scheduled to be released tomorrow. GDP is forecast to have expanded 0.8 per cent last quarter and grown 2.4 per cent from a year earlier.

    RBA to continue with accommodative policy

    Policy makers have reduced borrowing costs by 2.75 per cent since late 2011 to boost industries outside of mining. The effect of boom in the mining sector is subsiding. The low rates have helped the housing sector as it helped to increase construction activity in this sector. Few other firms have however been reluctant to spend.

    Stevens also added that low interest rates were “acting to support borrowing and spending.” The RBA plans to continue with its accommodative policy as it opined that monetary policy is required to be loose at this juncture when inflation in Australia remains low and the economy has some spare capacity. While keeping rates steady, the central bank reiterated that low inflation gave them scope to ease further if a further rate cut was required to support growth. Jasmin Argyrou, Aberdeen Asset Management’s senior investment manager aptly said “Low inflation does not provide reason to ease at this time but gives the RBA flexibility to respond should an unexpected shock occur.”
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