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RBA wants policy to be accommodative to support borrowing & spending

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 5, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - When The Reserve Bank of Australia (RBA) met on 3rd November to decide on their policy stance, they maintained that the monetary policy was required to be accommodative. The policy makers sighted how lower interest rate was supporting both borrowing as well as spending. They thus opined that it was best to leave the cash rate unchanged at 2.0 per cent.

    The Board left the rate unchanged because…

    Australia has been witnessing moderate expansion in the economy. Though the GDP has remained lower than the longer term averages, surveys have pointed towards a gradual improvement in conditions over the past year. Employment has looked up as well. Inflation is low and is forecast to be consistent with the target over the next one to two years.

    However figures have hinted at a fall in Australia’s terms of trade in the commodity market. Increased supply has led to lower commodity prices.

    Growth in lending to investors in the housing market eased slightly while that for owner-occupiers picked up. The changes in lending rates for housing have slightly reduced the central bank’s support to the economy. But the overall conditions continue to remain accommodative. Credit growth has increased slightly over recent months while equity prices have moved in parallel with developments in global markets.

    Overall the economy looks to be in a stable space and further impetus from the central bank will only help to push it forward. With the objective of growth in mind, the RBA thought of keeping rates constant for a little longer.

    The global growth has been moderate. Financial conditions overall remain very accommodative as major central banks continue to ease monetary policy. Financial markets volatility is also currently in control while credit costs for some emerging market countries remain higher than a year ago. The world economic scenario further convinced the RBA of the need to leave rates unchanged for now.

    No change in RBA’s November monetary policy from that of October

    The improvement in economic conditions had firmed and the further scope for growth was evident. Leaving the cash rate unchanged was thus deemed appropriate in this meeting. It was also observed at the meeting that future inflation outlook might facilitate further easing of policy. The policy makers, by all means want to support demand in order to keep stable the inflation figure.

    RBA’s policy stance agreed upon in November does not vary in principle from its October’s agenda. The RBA had adopted the same accommodative approach in its October session as well sighting the need to support demand and propel growth. It had kept the rates unchanged at 2 per cent in its last meeting as well.

    Will the RBA raise rates in December?

    The RBA aims to maintain price stability, full employment, and the overall economic prosperity. To achieve these it has set an ‘inflation target’ and aims to keep consumer price inflation in the economy to 2–3 per cent, on average. Whether the current monetary policy will foster sustainable growth and inflation consistent with the target is to be watched. As of now the RBA does not look in a mood to discontinue its present policy stance and reduce its support to the economy.
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